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OF  CALIFORNIA 

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OJL-:>'^(^^ 


ELEMENTARY   ECONOMICS 


•"^  V^^^S^Q 


OUTLINES 


OF 


ELEMENTARY  ECONOMICS 


BY 

HERBERT  J.  DAVENPORT 

Instructor  in  Economics  in  the  University  of  Chicago 


Infill  }3axk 
THE   MACMII>LAX    COMPANY 

LONDON:  MACMILLAN  &  CO.,  Ltd. 
1905 

All  rights  reserved 


Copyright,  1897, 
By  the  MACMILLAN  COMPANY. 


Set  up  and  electrotyped  September,  1897.      Reprinted  August, 
1898;  September,  1899;  June,  1901  ;   February,  1903;  June,  1905. 


NortoooD  ^rcBS 

J.  B.  Cunhing  Be  Co.  -  Berwick  &  Smith 
Norwood  MaRB.  U.S.A. 


/  ^  n  s 

PREFACE  TO  THE   SECOND  EDITION 

The  novel  and  experimental,  and  possibly 
even  erratic,  seeming  of  this  live-year-ago  essay 
in  text-book  writing  determined  the  author  to 
forego  any  attempt  to  shift  or  divide  the  respon- 
sibility for  either  his  doctrine  or  his  method  ; 
some  favor  having,  liowever,  met  the  book,  it 
becomes  a  pleasure  to  ascribe  the  better  part  of 
whatever  is  worth  while  in  it  to  the  thorough- 
going, incisive,  and  frankly  uncompromising 
criticism  received  at  the  hands  of  Professor 
W.  J.  Ashley ;  a  better  title  to  content  and 
less  occasion  for  reti^rct  Avould  now  remain  had 
even  larger  use  1)cl'ii  iiiiuU'  of  this  searching 
and  kindly  (  riticisni.  Some  belated  amend- 
ments of  this  character  have  been  incorporated 
in  the  present  edition. 

The  University  of  Cuicago. 


862423 


NOTE   TO   THE   TEACHER 


The  importance  which  the  author  attaches  to 
the  method  of  suggestive  questions  is  perhaps 
sufficiently  indicated  by  the  space  which  he 
has  assigned  thereto.  The  purpose  is  several- 
f  okl :  — 

(1)  To  summon  to  the  aid  of  the  student 
liis  fund  of  observation,  experience,  and  crude 
generalization.  This  is  the  essential  feature  of 
the  inductive  method  as  applied  to  the  study 
of  social  phenomena ; 

(2)  To  effect,  through  economics,  a  new  cor- 
relation of  the  student's  mental  acquirements ; 

(3)  To  stimulate  the  interest  of  the  student 
through  the  association  of  the  discussions  with 
the  familiar  facts  of  his  every-day  experience ; 
and 

(4)  To  concentrate  his  attention  upon  the 
dithculties  which  will  furnish  the  l)asis  for  the 
discussion  which  is  to  follow. 


Vi  NOTE   TO    THE   TEACHER 

It  is  VL'i-y  possible  —  indeed  it  is  intended  — 
that  out  of  man)  oi'  these  questions  the  student 
will  merely  beeome  puzzled.  It  is  believed  that 
this  is  pedagogically  helpful ;  answers  have  no 
j)la(('  except  as  following  questions.  It  must 
happen  also  that  one  question  be  found  of  profit 
to  this  or  that  student,  while  entirely  failing  to 
appeal  to  a  third. 

The  author  has  made  an  earnest  effort  to 
avoid  definitions  and  sub-classifications,  and  in 
general,  everything  which  pertains  to  what  may 
be  called  the  catalogue  method  of  presentation. 
Outside  of  the  work  which  the  questions  require 
of  the  student,  the  treatment  is  studiously  theo- 
retical rather  than  descriptive. 

Rightly  taught  and  rightly  learned,  political 
economy  is  of  the  utmost  value  as  a  culture 
study,  as  well  as  a  preparation  for  the  duties 
and  activities  of  practical  life.  In  neither  of 
these  aspects  can  any  training  be  adequate,  or 
the  results  of  it  steadfast  in  the  mental  equip- 
ment, if  the  treatment  is  merely  descriptive  and 
discursive,  instead  of  offering  a  close-knit  and 
coherent  body  of  elementary  theory.  Students 
wlio  are  able  to  master  the  abstract  conceptions 
of  algebra  and  geometry,  need  experience  no 
diiliculty  with  the  simpler  aspects  of  economic 


NOTE  TO   THE   TEACHER  Vll 

theory,  it"  tlicsu  are  presented  with  such  sim- 
plicity of  statement  and  arrangement  as  the 
subject  permits. 

Wliile,  however,  as  is  already  indicated,  it 
has  not  been  the  purpose  of  the  writer  to  make 
an  easy  text-book,  the  method  is  such  that  the 
measure  of  difliculty  or  of  exhaustiveness  in  the 
treatment  will  largely  rest  in  the  decision  of 
the  teacher,  in  view  of  the  age  of  the  pupils 
and  the  time  at  their  disposal. 

The  teacher  is  advised  to  require,  in  general, 
that  written  answers  to  both  the  introductory 
and  the  review  questions  be  brought  to  the  class- 
room. It  is  inqjortant  also  that  the  answers  to 
the  introductory  questions  be  attemiDted,  or  a 
discussion  of  them  had  in  the  class-room,  before 
the  text  is  read  by  the  student  or  appointed 
him  for  study. 

In  conclusion,  the  teacher  is  especially  cau- 
tioned against  the  notion  that  he  is  expected  to 
furnish  for  himself  or  his  class  a  satisfactory 
answer  to  every  one  of  the  questions,  or  even 
in  all  cases  to  divine  the  drift  of  them.  Not  a 
few  of  the  (|uestions  the  author  would  himself 
be  unable  to  answer.  In  many  cases  the  pur- 
pose has  been  merely  that  the  difficulty  should 
be  honestly  niet,  or  again  that  it  be  brought 


viii  NOTE   TO   THE   TEACHER 

out  clearly  that  the  problem  suggested  is  not 
one  requiring  the  attention  of  the  economist  as 
such. 

HERBERT  J.   DAVENPORT. 

Chicago,  August  10,  1897. 


ANALYTICAL  TABLE  OF  CONTENTS 

(References  are  to  Sections) 


CHAPTER  I 

page 

The  Scope  of  the  Science 1 

The  important  thing  not  money,  1  ;  but  goods,  2. 
Value  and  price  defined,  3. 
Political  economy  defined,  4. 

CHAPTER   II 

Man  and  Environment 8 

The  law  of  adaptation,  y. 

Man  is  one  term  in  the  adjustment,  6-8. 

The  two  terms  considered  together,  9-11. 

Environment  affects  man,  10. 

Man  in  energy  and  effort,  12  ;  in  moral  qualities,  12  ; 

in  forethought  and  intelligence,  12  ;  liberty  and 

security,  12. 

CHAPTER   III 

Utility  and  Wealth 23 

Utility  explains  desire  ;  desire  the  primary  force,  13. 
Utility  not  an  ethical  question,  14. 
Production  is  not  creation,  15. 
There  is  no  material  measure  of  wealth,  10. 
The  lines  of  increase  are  (1)  external,  (2)  inter- 
nal, 17. 
Services,  18. 

Intellectual  acquirements  are  not  wealth,  19. 

ix 


X         AyALYllCAL    TABLE  OF  CONTENTS 
CHAPTER   IV 

I'AGF. 

Tin:   Factous  in    I'lioniiCTiON 33 

Aiv  mail,  natural  opportunity,  and  capital,  20. 
Capital  an  intermeiliate  ti'riu,  21. 
Advantages  of  iiiacliinery,  22. 

Wacks,   ruorrrs,  Uicxts,  and  Inticukst 38 

These  factors  have  their  respective  remunerations,  23. 

Profit  is  essentially  wages,  2-4-26. 

The  inter-relations  of  profits  and  wages,  27. 

CHAPTER   V 

Vame 47 

All  rciiiuiiciatioiis  flow  from  value,  28. 
All  outlays  mad(!  in  view  of  value,  20,  .30. 
Desires  are  satiable,  31,  32. 

Value  is  fixed  by  the  process  of  marginal  adjust- 
ment, 33-30. 
Is  an  expression  of  sacrifice,  37. 
Is  in  antagonism  with  utility,  38. 
Production  is  a  purchase  from  nature,  39. 

CilAI'TER   VI 

f'<)"ir  oi    Pi;oi)i;cTioN 67 

Human  actions  follow  line  of  least  sacrifice,  40. 
Economic  action  not  necessarily  selfish,  40. 
What  sacrifice  measures  value,  41. 
Outlays  not  the  ultimate  cost,  42  ;  nor  labor,  42. 
Cost  of  production  analyzed  ;  the  marginal  doctrine, 
43,  44. 

(lI.M'rER    VII 

Rent  oi    I>am> '" 

Value  of  proihict  conlrois  outlays,  45. 
There  are  differeiici  s  in  land,  40. 


ANALYTICAL    TABLE   OF  COA- TENTS        \l 


Increase  of  population  raises  rent,  47. 
Lowers  wages  ami  iiitenst,  48. 
Law  of  diiniiiisliing  returns,  49. 
Urban  lands,  50. 
Rent  not  a  part  of  price,  51,  53. 
Margin  of  cultivation  and  prices,  52. 

CHAPTER  VIII 

Interest 95 

The  demand  for  capital,  54,  55. 

The  importance  of  time,  56. 

Interest  is  premium  of  present  over  future,  58,  59. 

How  fixed,  GO. 

Effect  of  machinery  on  wages,  61,  62. 

CHARTER   IX 

Wages  and  Distimiu  tion 108 

Fundamental  question  is  product  to  divide,  63. 

Standard  of  living  unimportant,  64. 

Bearing  of  demand  and  supply  on  wages,  65. 

Particular  classes  of  laborers,  66. 

Harmony  and  conflict  in  relations  of  employers  and 

employees,  67. 
Machinery  raises  wages,  68  ;  because  the  tendency 

of  profits  is  downward,  69-71. 

CHAPTER   X 

Population,  Increasing  and  Diminishing  Returns     124 
Malthus  and  the  Engli.sh  poor  laws,  72,  73. 
Increase  of  population  may  lower  the  per  capita 

product,  74. 
Diminishing  returns,  75. 
Is  over-population  coming  ?  76. 
Increasing  rtturiis,  77,  78. 


xii      ANALYTICAL    TABLE  OF  CONTENTS 
CHAPTER  XI 

PAGE 

Monet 135 

Its  usefulness,  79,  80. 

Necessary  qualities,  81. 

Credit  is  one  aspect  of  exchange,  82. 

Peculiar  qualities  of  gold  and  silver,  83. 

There  is  no  idral  money,  85. 

The  silver  (juestion,  80. 

The  demand  for  money  is  limited  by  the  division 

of  lahor,  87  ;  is  increasing,  88. 
The  value  of  money,  89. 

Quasi-rents  explain  the  demand  for  money,  90-92, 
Supply  of  money,  9.3. 
Effect  of  increase  of  supply,  94. 
Credit  and  bank  currency,  95. 
Government  issues,  96. 
Gresham's    law,    97-99;   proves   local  expansions 

futile,  100. 
Commercial  crises,  101-104. 
Advantages  and  disadvantages  of  credit,  105. 
Remedies,  106. 

CHAPTER   XII 

The  Competitive  System 179 

Can  humanity  improve  its  own  condition  ?  107-110. 
Examination  of  present  system,  111-114. 
Socialism  examined,  115. 

CHAPTER   XIII 

Population,  Rent,  and  Socialism 191 

Disf|uieling  doctrines  not  necessarily  false,  116. 
Diminishing  returns  again,  117. 
Would  sncialiRin  lulp?  118. 
Increasing  returns  again,  119. 


ANALYTICAL   TABLE  OF  CONTENTS    XlU 
CHAPTER   XIV 

I'A(;k 

Some  Current  Questions  in  Economics      ....     201 

SpecithKioii,  120-127. 

Cvmbinatiun  and  Monopoly,  128. 

Trades-unions,  129, 

The  Eight-hour  Day,  130,  131, 

The  Suwatiuij  System,  132. 

Labor  iif  Women  and  Children,  133,  134. 

Wages  of  Women,  135. 

The  Tariff  Question,  136-147. 

CHAPTER  XV 
Taxation 237 

Is  essential  fact  in  government,  148. 

Govcrniiieuts  are  worth  more  than  they  cost,  but 

they  cost,  149. 
No  miracles  in  taxation,  150. 
All  taxes  fall  on  consumption,  151. 
How  best  collected,  152  ;  Practical  rules,  153. 
The  shifting  of  taxes,  154, 
Taxes  on  rent  ;  Henry  George,  155. 
Taxes  on  interest,  156. 
Taxes  on  income,  157-159. 
Taxes  on  liquors  and  tobacco,  160. 
Taxes  on  inheritances,  IGl, 
Distribution  between  central  and  local  government, 

162. 
Taxes  on  personal  property,  162. 

CHAPTER  XVI 
Consumption,  Standards  of  Life,  and  Fashion      .     257 

Wiiich  is  first  cause,  production  or  consumption  ? 

103,  1G4. 
Expansiveness  of  desires,  165,  1(5G. 
Disappointing  and  non-disappointing  desires,  167. 
Ostentation,  168. 


Xiv      ANALYTICAL    TABLE  OF  CONTENTS 
CHAPTER   XVII 

PAOK 

Conclusion 267 

Is  business  overdone  ?     In  what  directions  is  there  ' 

room  ?  KiO. 
Wimt  thinjis  in  life  are  best  worth  while  ?  170. 
The  purpose  of  culture,  171. 


ELEMENTARY   ECONOMICS 


-»o>»Jo«- 


CHAPTER   I 

SCOPE  OF  THE   SCIENCE 

What  do  you  suppose  Political  Economy  is  about? 
Would  the  study  of  the  Australian  ballot  system  fall 
within  it?  The  popular  election  of  senators?  The  sil- 
ver question  ?     Money  generally  ?     The  tariff  question  ? 

Do  you  see  any  way  in  which  Geology  could  bear  on 
what  you  suppose  to  be  economic  questions  ?  Geogra- 
phy ?     History  ? 

Ought  the  economist  to  understand  the  processes  of  the 
iron  industry?     The  science  of  electricity  ?     Chemistry? 

Have  these  anything  to  do  with  Political  Economy  ? 
How? 

Is  more  retjuired  than  that  the  economist  understand 
the  laws  and  facts  common  to  industries  in  general  ? 

What  are  scientific  laws  as  distinguished  from  moral 
laws  and  civil  laws? 

Is  Economics  concerned  with  the  relations  of  employ- 
ers with  employees  ? 

Does  the  study  of  markets,  values,  and  prices  require 
the  examination  of  transportation  questions?     How  ? 

How  does  climate  become  important  in  Economics  ? 
Waterways?  Mineral  resources?  Human  wants  and 
needs?  Religion?  Morals?  Public  health?  General 
intelligence? 

B  1 


2  ELEMENTARY  ECONOMICS 

"Why  should  any  one  produce  wealth  ? 

Do  you  know  any  one  who  has  more  wealth  than  he 
needs?     Than  lie  tliinks  he  needs? 

Is  either  condition  likely  ever  to  become  common  ? 

Does  demand  limit  consumption,  or  is  it  supply? 

What  is  the  practical  limit  to  consumption  ? 

Does  avoraq;e  consumption  depend  upon  the  amount  of 
money  in  tlie  world,  or  upon  the  amount  of  wealth  pro- 
duced? 

Suppose  there  were  no  money,  how  could  the  farmer 
use  his  grain  to  procure  machinery  or  clothing? 

Do  you  see  any  respect  in  which  tliis  would  be  incon- 
venient? 

In  what  sense  can  money  be  termed  a  common  denomi- 
nator of  values  ? 


1.  If  one  were  to  offer  you  a  ten-dollar  bill 
on  the  condition  that  you  should  always  keep 
Why  we  use  i*,  you  probably  would  not  greatly 
money.  prize  the  gift.     Even  were  a  ten- 

dollar  gold  piece  offered  you,  and  you  were 
bound  to  keep  it  as  such,  not  making  it  over 
into  something  of  service  or  ornament,  you  , 
would  not  very  warmly  thank  the  giver.  Money 
is  good  to  buy  things  with.  Men  in  society 
and  societies  as  a  whole  are  well  off,  not  in 
proportion  to  the  money  they  have,  but  in  pro- 
portion to  what  they  can  get  to  consume.  We  , 
are  used  to  selling  things  for  money  and  to 
buying  things  with  money,  so  that  it  comes  to 


SCOPE  OF  THE  SCIENCE  3 

stand  with  us  as  the  most  general  symbol  or 
representative  of  the  things  which  we  buy. 
Men  commonly  reckon  their  riches  in  terms  of 
mone}%  as  we  commonly  state  the  value  of  each 
commodity  in  money.  It  would  be  inconvenient 
to  exchange  sheep  for  cattle,  or  tooth-brushes 
for  iron.  When  we  go  to  the  concert,  it  is  not 
practicable  to  pay  in  hay,  or  chickens,  or  jack- 
knives.  The  doctor  or  the  newspaper  man  ob- 
jects to  garden  truck  as  pay.  It  is  better  for 
all  concerned  to  pay  in  money  and  to  allow  the 
receiver  to  expend  the  money  for  the  things  he 
may  desire.  We  use  money  as  a  common  de- 
nominator just  as,  in  arithmetic  or  algebra,  if 
we  are  going  to  work  in  fractions,  it  is  most 
convenient  to  reduce  these  fractions  to  a  com- 
mon denominator. 

2.  But  what  things  we  can  get  with  our 
money,  and  not  the  money  itself,  is  the  impor- 
tant matter.     People  could  get  on 

.  .  Things  and  not 

Without  money,  making  their  ex-  money  the  im- 
changes  with  each  other  directly  P°^'^°t  f^*'*. 
by  trade  or  barter,  though  doubtless  this  would 
be  inconvenient.  So  people  in  ancient  times 
used  cattle  as  money,  the  Indians  in  early  colo- 
nial days  used  beads  or  wampum,  the  Virginia 
colonists   tobacco,   and   even    of  late   years   in 


4  ELEMENTARY  ECONOMICS 

some  parts  of  the  South,  twists  of  perique 
tobacco  have  served  as  the  medmm  of  exchange, 
rhe  use  by  children  of  pins  in  their  small  com- 
merce of  store-keeping  is  a  familiar  fact. 

How  much  any  people  can  have  to  eat  and 
wear  and  enjoy — its  share  in  the  good  things 
of  life  —  must  depend  upon  how  much  is  pro- 
duced. Consumption  is  limited  by  production. 
It  is  a  question  of  factories,  and  herds,  and 
crops,  and  not  of  money.  Money  is  the  meas- 
ure —  the  common  denominator  of  value  —  the 
medium  of  exchanging  goods  between  men  — 
and  not  the  cause  or  the  basis  or  the  test  of 
well-being.  Doubling  the  amount  of  money  in 
a  country  would  not  double  the  production  of 
the  fields  and  factories,  or  the  strength  and 
skill  of  Imman  beings.  All  these  would  remain 
as  they  were  before.  Each  of  us  would  like  to 
have  liis  own  money  doubled,  just  as  each  of  uk 
would  like  an  increased  number  of  orders  or 
of  coupon  books  upon  the  grocer  or  dry-goods 
man.  Hut  increasing  the  coupon  books  would 
not  increase  the  amount  of  goods  wliich  the 
grocer  or  dry-goods  man  has  in  his  shop.  In- 
creasing the  money  does  not  increase  the  cora- 
nioditics.  Tlie  aggregate  production  is  the 
essential    fact    in    any  society.      Wljo  has   the 


SCOPE  OF  THE  SCIENCE  5 

orders  or  coupons  for  it  —  the  money  —  is  a 
question  of  who  gets  most  in  the  division  or 
distribution  of  the  goods  produced.  We  there- 
fore call  the  aggregate  production  of  a  nation 
or  of  a  society  the  national  or  social  dividend. 
The  average  of  consumption  is  found  by  divid- 
ing the  aggregate  production  by  the  number  of 
shares  in  it;  that  is  to  say,  by  the  population. 
Average  consumption  is  of  the  nature  of  a 
quotient. 

Thus  we  see  that  those  nations  which  used  to 
make  great  efforts  to  acquire  and  keep  in  the 
country  money  or  jewels  and  precious  stones, 
were  mistaking  tlie  symbol  for  the  substance. 
It  is  as  if  a  nation  should  regard  itself  as  rich 
in  proportion  to  its  yardsticks  or  coupon  books, 
or  as  if  a  farmer  were  to  estimate  his  crop  by 
the  number  of  wagons  he  had  in  which  to  carry 
it  to  market. 

To  say  that  the  love  of  money  is  the  root  of 
all  evil  is  a  conveniently  short  but  inaccurate 
method  of  expressing  a  great  truth.  Loveofmoneyis 
Cupidity  in  some  of  its  forms  is  love  of  wealth. 
the  root  of  endless  evil  ;  but  people  want  not 
money,  —  they  want  the  things  which  money 
will  buy.  Only  people  witli  diseased  brains 
care  for  money  as  a  tiling  in  itself.     When  Ave 


6  ELEMENTARY  ECONOMICS 

I 

speak  of  the  love  of  money,  we  use  a  sort  of 
shorthand  expression  for  the  love  of  the  things 
in  life  which  are  bought  and  sold.  Money  is 
the  general  form  in  which  desires  express 
themselves  and  temptations  present  themselves. 
But  human  needs  and  desires  are  the  source 
of  all  well-doing,  equally  with  all  ill.  If  we 
wanted  nothing  we  should  do  nothing.  The 
evil  is  in  the  improper  direction  and  insuffi- 
cient restraint  of  desires.  Money  is  helj)ful 
because  it  enables  us  easily  and  conveniently 
to  make  exchanges  of  goods.  Barter  would  be 
inconvenient  and  impracticable. 

3.  This  brings  us  to  the  difference  in  mean- 
ing between  the  terms  "value"  and  "price." 
Value  and  This    difference     is    important     in 

^™«-  Political    Economy,    though    it    is 

not  always  observed  in  common  speech.  When, 
in  the  technical  use,  we  speak  of  tlie  value 
of  the  thing,  we  mean  what  it  is  worth  of 
other  things ;  when  we  speak  of  tlie  j)rice,  we 
mean  its  value  measured  in  terms  of  money. 
Thus  a  horse  may  be  worth  two  cows,  a  cow 
five  sheep.  Put  in  terms  of  price,  we  should 
say  tliat  the  horse  was  worth,  for  example, 
fifty  dollars,  the  cow  twenty-five  dollars,  and 
the  sheep  five  dollars  each. 


SCOPE  OF  THE  SCIENCE  7 

4.  Political  Economy  is,  in  a  general  way, 
an  investigation  of  the  manner  in  which  men 
think  and  act  in  the  business  affairs  pouticai  Econ- 
of  life,  — a  study  of  their  activity  omy  defined. 
as  related  to  the  things  which  are  bought  and 
sold.  Thus  we  are  set  to  inquire  about  farms 
and  crops,  factories,  stores,  railroads,  banks, 
wages,  interest,  rents,  values,  and  prices,  and 
the  countless  facts  and  influences  bearing  upon 
matters  of  this  sort.  Political  Economy  is  not 
merely  the  tariff  question  or  the  money  ques- 
tion, as  many  beginners  are  apt  to  believe,  but 
a  great  deal  more  than  this,  and  much  of  it  of  a 
great  deal  higher  importance.  Perhaps  the  fol- 
lowing will  answer  as  a  fairly  accurate  statement 
of  the  scope  of  our  subject :  Political  Economy 
treats  of  men  in  their  commercial  and  industrial 
activities  from  the  standpoint  of  markets  and 
values. 

SUGGESTIVE  QUESTIONS 

Define,  as  far  as  you  now  can,  the  terms  "value"  and 
"  price." 

If  things  were  all  doubled  in  price,  what  effect  would 
this  have  on  vahies? 

Mention  some  rehations  of  Chemistry  to  Medicine.  Of 
Mathematics  to  Physics.     Of  Geology  to  Zoology. 

From  the  point  of  view  of  how  many  sciences  can  you 
discuss  a  stick  of  wood  ? 


CHAPTER   II 

MAN   AND    ENVIRONMENT 

"Why  is  the  polar  beai*  Avhite  ? 

Why  are  many  snakes  striped? 

Wliy  are  soine  forms  of  life  able  to  change  in  color  to 
fit  the  color  of  the  background? 

Why  have  northern  animals  heavy  coats  of  fur? 

As  far  as  we  can  see,  is  the  world  adapted  to  the  forms 
of  life  upon  it,  or  are  the  forms  of  life  adapted  to  the 
world  ? 

Illustrate  your  answer  from  Botany  and  Zoology. 

What  becomes  of  such  forms  of  life  as  fail  of  adapta- 
tion ?     ^Vhat  of  the  foi'ms  best  adapted  ? 

What  is  the  "struggle  for  life"? 

What  iiiihuMices  limit  or  tend  to  limit  the  numbers  of 
buffalo,  trout,  flies,  rats,  squirrels,  men  ? 

Are  similar  influences  at  work  in  the  vegetable  world? 
How  ? 

Tlie  cultivated  strawberry  set  in  the  field  reverts  to  the 
type  of  the  wild  berry.     Why? 

What  influence  would  bring  it  back  to  the  garden 
type?     Why? 

Explain  the  fact  that  orchard  apples  have  much  pulp. 

Of  what  utility  is  the  pulp  to  the  wild  apple? 

Mention  some  kinds  of  .seeds  distributed  by  animals. 

How  may  color  help  toward  distribution? 

What  is  Xatiinil  Selection? 

What  is  Artificial  Selection? 

8 


MAN  AND  ENVIRONMENT  9 

What  is  Conespoiidence  to  Euviroinnent? 

Why  are  tropical  races  dark?  Northern  races  vigor- 
ous and  industrious? 

INfentinn  sucli  different  elements  of  success  in  life  as 
you  can. 

On  what  does  the  raising  of  a  good  crop  depend? 

Has  a  good  chance  in  life  nuich  to  do  with  success? 

Why  not  raise  bananas  in  Canada  ? 

Could  Shakspeare's  plays  have  been  written  in  the 
Sioux  language?     Tliought  out  in  a  Sioux  civilization? 

Are  there  any  millionaires  in  Greenland?  Why? 
Where  are  they  found  ? .  Why  ? 

Is  an  opportunity  to  get  a  good  education  to  be  re- 
garded as  part  of  yourself  or  part  of  your  .•sm-roundings? 

When  you  have  obtained  the  education,  which  is  it? 

Mention  such  necessary  conditions  as  you  can  to  the 
prosperity  of  a  great  silk  factory. 

Apportion  these  elements  into  two  classes,  (1)  those 
which  are  huniun  in  their  character,  (2)  those  which  are 
not. 

Apportion  these  elements  into,  (1)  those  which  pertain 
to  the  owner,  (2)  those  which  pertain  to  his  surroundings 
and  opportunities. 

Describe  the  social  conditions  necessary  to  the  exist- 
ence of  a  great  silk  factory  in  (^0  public  tastes,  (6)  trans- 
portation, (c)  machinery  and  mechanical  skill,  (d)  motive 
power,  (e)  social  security  and  morality,  (/)  laws,  (g)  in- 
ternational relations. 

5.  Polar  bears  are  fouiul  to  be  wliite;  snakes 
which  live   in  the  grass  are  green  Adaptation  to 

,    .        1  (.  T     •  •        environment  — 

or  striped;  races  ot  men  living  m   ^^tor  and  op- 
hot   climates    are    generally    dark,   portunity. 
We  say  that  these  things  are  due  to  the  condi- 


f 


10  ELEMENTARY  ECONOMICS 

tions  ill  which  these  different  orders  of  animal 
life  have  lived.  Bees  taken  to  a  climate  of 
continual  summer  are  said  to  lose  their  habit 
of  accumulating  honey.  The  fish  in  Mam- 
moth Cave  are  without  eyes. 

Not  only  in  animal  life,  but  in  vegetable  life 
as  well,  similar  facts  are  observed.  Large  trees 
grow  in  fertile  soil  and  fostering  climate,  the 
finest  vegetables  in  rich  and  well-tilled  gardens. 
On  the  other  hand,  the  cultivated  plant  set  in 
the  poor  soil  of  the  field  to  make  its  way  against 
grass  and  weeds  reverts  to  the  type  of  its  wild 
ancestor. 

Botany  and  Zoology  should  already  have 
tauglit  the  student  this  great  law  of  adaptation 
in  its  two  aspects  of  correspondence  to  environ- 
ment and  of  survival  of  the  fittest.  Lack  of 
correspondence  means  disadvantage  in  the 
struggle  for  growth  and  life.  This  principle 
holds  for  man  as  well  as  for  the  lower  orders. 
Human  life  and  human  society  must  be  studied 
with  constant  attention  to  the  conditions  which 
surround  and  limit  activity  and  development. 
Individual  success  in  the  contests  of  social  life 
is  not  purely  a  question  of  ])lii(;k  and  brain; 
something  must  be  allowccl  lor  education  and 
opportunity.       Good    legs  and  a  fair  field  are 


MAN  AND  ENVIRONMENT  11 

both  needed  for  fast  running.  So  in  economic 
relations  both  actor  and  opportunity  require 
examination. 

6.    Thus  the  human  race  in  its  rehitions  to 
its  environment,  and  the  individual  of  the  race 
in  his  relations  to  an  environment 
of  which  the  other  members  of  his 
race   are    themselves    a   part,    are   the   subject 
matter  of  all  economic  and  social  study.     Man, 
as  one  term  of  the  science,  is  regarded  as  stand- 
ing over  against  an  outside  world  of  fact  and 
circumstance.     He  is  neither  entirely  the  mas- 
ter of  his  fate,  nor  yet  entirely  the  puppet  of 
the  forces  by  which  he  is  surrounded.     He  is 
himself  a  force,  a  centre  of  energy  and  activity. 
He  is  one  of  the  facts  in  the  complex  interplay 
of   human  with   natural    energies.     If   he   re- 
ceives, he  gives;  if  his  environment  rains  its 
influences  upon  him,    he    puts   forth  his   own 
efforts  in  adapting  self  to  environment  or  en- 
vironment to  self.     lie  strives  and  resists  and 
reacts.     George  Eliot  has  put  the  case  help- 
fully,  when,   in  sup})lement   to  the  half-truth 
"  Our  deeds  are  fetters  which  we  forge  our- 
selves," she  adds,  "Aye,  but  I  think  it  is  the 
world  that  brings  the  iron.''     The  history  of 
human   development  is  the  story  of  what  cir- 


12  ELEMENTARY  ECONOMICS 

cumstance  has  done  for  man  and  man  for  cir- 
cumstance —  the  play  of  outside  forces  upon 
him  and  his  reactions  thereupon.  There  are 
thus  two  forces  in  the  problem  of  histor}^,  — 
man  and  nature.  The  resultant  is  the  direc- 
tion of  human  development. 

,7.  Tliis  is  not  a  difficult  notion.  As  has 
already  been  stated,  it  is  merely  one  aspect  of 
that  which  men  of  science  call  the  law  of  adap- 
tation or  of  correspondence  to  environment. 
Life,  for  each  one  of  us,  is  a  question  of  what 
there  is  in  us  plus  what  is  outside  —  of  our 
powers  and  energies  in  the  face  of  our  sur- 
roundings and  opportunities.  Give  Crusoe  his 
island,  what  will  he  do  with  it?  This  is  in 
part  a  question  of  Crusoe  and  in  part  a  ques- 
tion of  his  island.  Likewise  for  races  the 
problem  is  on  one  side  a  matter  of  character 
and  capacity,  on  the  other,  of  surroundings 
and  opportunity. 

8,    It    is   unnecessary  for    the    purposes   of 

Political   Economy  to  push   the  question  into 

an    inciuiry   as    to    which    of   these 

No  matter  now  '■        '' 

which  is  pri-  two  forces  ill  liuiiiau  development, 
'°"^'  if  either,    is   the   primary  fact  and 

which  tlie  derivative.  We  may,  for  example, 
regard  coral  polyps  as  a  product  of  the  sea;  it  is 


MAN  AND  ENVIRONMENT  13 

none  the  less  true  that  once  existing  they  not 
merely  suffer  but  work  the  processes  of  sea 
change.  It  constantly  occurs  that  a  result 
becomes  in  turn  a  cause, — as,  for  example, 
in  Chemistry,  where  a  product  of  combination 
or  decomposition  furnishes  a  basis  for  a  new 
series  of  chemical  changes,  or  in  Physics,  where 
in  a  row  of  blocks  one  falls  as  the  result  of  an 
impact  received,  and  by  delivering  its  impact 
causes  the  next  to  fall,  or  again  in  Chemistry 
where  combustion  liberates  gases  which  them- 
selves furnish  material  for  further  combustion. 

Economic  science  is  not,  however,  greatly 
concerned  with  the  history  of  human  develop- 
ment; the  main  purpose  of  our  discussion  is  to 
fix  clearly  and  definitely  the  first  important  dis- 
tinction in  economic  theory  —  the  division  of 
its  subject  matter  into  the  two  terms  of  man 
and  environment,  the  human  and  the  non- 
human  elements  in  the  problem.  Taking  man 
as  he  is  in  relation  to  his  environment  as  it 
exists.  Political  Economy  treats  of  him  in  his 
commercial  and  industrial  activities  as  viewed 
from  the  standpoint  of  markets  and  values. 

9.  The  production  of  wealth  b}^  man,  so  far 
as  it  does  not  rest  witli  the  character  of  the 
actor  himself,    must   therefore   lind  its    expla- 


14  ELEMENTARY  ECONOMICS 

nation  in  the  nature  of  his  environment,  —  in 
Prodnction  of  the  elements,  in  the  varying  condi- 
Tn  a\  man^'^  tions  of  temperature,  rainfall,  sun- 
(2)  opportunity,  shine,  humidity,  healthfulness,  etc. 
—  in  the  soil,  or,  more  accurately,  in  the  land, 
its  fertility  and  workability,  its  mineral  re- 
sources, its  convenience  for  industry 

Environment.  .        ,  . 

and  commerce ;  m  the  varying  sum 
of  natural  forces  more  or  less  within  the  control 
of  man,  such  as  winds,  tides,  electricity,  gravi- 
tation, and  steam.  This  enumeration  is  of 
necessity  both  incomplete  and  inexact.  Clim- 
ate cannot  be  definitely  distinguished  from 
winds,  electricity,  and  light,  nor  can  natural 
forces  be  treated  apart  from  questions  of  navi- 
gation and  convenience  for  commerce.  Light, 
which  may  be  used  as  a  natural  force  for  power 
or  for  the  purposes  of  chemistry  or  art,  is,  from 
another  point  of  view,  an  important  factor  in 
the  fertility  of  the  soil.  But  it  is  important 
merely  to  hold  in  mind  that  wealth  depends 
upon  the  correspondence  of  two  factors,  — 
(1)  man  liimself,  (2)  the  conditions  surround- 
ing him.  He  may,  in  large  measure,  modify 
surrounding  conditions.  But  it  will  still 
remain  true  that  the  arctic  regions  and  the 
tropical   deserts  do  not  offer  favorable  oppor- 


MAN  AND  ENVIRONMENT  15 

tunities  for  his  wealth-producing  activities. 
He  may  adapt  himself  in  some  degree  to  an 
unhealthful  climate.  But,  in  some  measure, 
an  unhealthful  climate  must  exercise  an  un- 
favorable influence  on  liis  powers.  He  may 
make  for  himself  artificial  lines  of  communi- 
cation, but  rivers,  lakes,  and  seas  will  retain 
an  economic  importance  for  this  purpose.  He 
may  exist  making  small  use  of  the  opportuni- 
ties offered  by  natural  forces,  but  it  will  remain 
true  that  in  these  rest  the  possibility  of  the 
greatest  efficiency  and  the  largest  field  for 
economic  progress. 

10.  Turning  to  a  closer  examination  of  the 
factor,  man,  we  find  wide  differences  between 
different  races  of  men,  and  between  u^j^  ^^  ^^^^^^^ 
different  men  of  the  same  race,  by  environment. 
We  need  not  assert  that  all  of  these  differences 
are  due  to  environment;  clearly  enough,  how- 
ever, some  of  them  are.  The  human  race  ex- 
hibits the  effects  of  correspondence  otherwise 
than  in  color  and  physical  power.  Not  only 
have  men  been  profoundly  influenced  by  their 
surroundings  in  health,  strength,  and  stature, 
but  also  in  habits,  character,  and  intelligence. 
The  student  need  only  call  to  his  aid  his 
knowledge    of    Geography    to    lind    this    many 


10  ELEMENTARY  ECONOMICS 

times  verified.  Civilization  is  too  difficult  a 
problem  in  the  frigid  zones  for  any  race  yet 
fully  to  have  solved  it.  The  problem  of  mere 
existence  in  the  tropics  is  so  over-easy  as  to 
have  degraded  man,  through  stagnation  and 
ignorance,  into  an  incapacity  for  civilization. 

11.    The  student  should  now  be  able  to  ap- 
preciate the  truth  that  wherever  there  is  found 
a  hifjh  stajje  of  civilization,  or  great 

How  explain  .  '         & 

high  and  low  prosperity,  or  a  high  aveiage  pro- 
^^^^^  duction  and  consumption  of  wealth, 

the  explanation  must  always  lie  in  the  charac- 
ter of  the  people  under  examination  or  in  the 
character  of  the  country  in  which  they  live.  If 
the  peo[)le  in  China  have  less  per  capita  to  con- 
sume than  the  people  in  France,  it  is  because 
the  Chinese  produce  less  per  capita  than  do  the 
French;  and  the  explanation  of  tliis  must  be 
found  in  the  lower  vigor,  or  skill,  or  energy,  or 
intelligence,  or  scientific  attainments  of  the 
Chinese,  or  in  the  unfavorable  character  of  the 
opportunities  in  which  they  live.  If  Ameri- 
cans are  more  prosperous  and  live  better  than 
Europeans,  it  must  be  tliat  Americans  are  better 
producers,  —  more  active,  more  inventive,  more 
enterpiising,  — or  that  the  soil  and  climate  and 
other  natural  resources  of  America  offer  more 


MAN  AND  ENVIRONMENT  17 

advantageous  opportunities  for  ])roduction. 
No  one  has  great  difficulty  in  understanding 
this  principle  as  illustrated  in  the  affairs  of 
everyday  life.  Long  ago  it  was  remarked  that 
not  even  the  most  skilful  workman  could  make 
bricks  without  straw\  Bad  tools  place  the  best 
of  mechanics  at  disadvantage.  Men  do  not 
gather  grapes  of  thorns  or  figs  of  thistles.  It 
takes  more  than  a  good  farmer  alone,  or  than  a 
good  farm  alone,  to  make  a  good  crop;  this 
needs  both  I'ann  and  farmer.  Only  opportunity 
improved  is  success. 

12.  It  is  obviously  true  that  the  producing 
powers  of  men  are,  in  large  measure,  matters 
of  physical  strength  and  endurance.  Man  in  energy 
Perhaps  an  equal  measure  of  im-  ^^^  ^^°'^^- 
portance  should  be  ascribed  to  agility  and 
intensity  of  effort.  The  German  economist, 
Wilhelm  Roscher,  writes  in  this  regard:  — 

"According  to  tlie  reports  of  English  niauufacturers  an 
English  workman  produces  on  an  average  ahnost  twice 
as  much  as  a  Frenchman ;  the  latter  in  turn  more  than 
an  Irishman.  An  English  wage-earner  who  had  worked 
in  a  French  factory  speaking  before  the  Parliamentary 
Committee  gave  his  opinion  of  the  French  as  follows :  It 
cannot  be  called  work  they  do ;  it  is  only  looking  at  it  and 
wishing  it  done.  Thus,  for  example,  a  good  English  spin- 
ner with  an  eight-hundred  spindle  machine  could  produce 


c 


18  ELEMENTARY  ECONOMICS 

daily  sixty-six  pounds  of  yarn;  a  Frenchman  only  forty- 
eight  pounds.  .  .  .  The  report  of  an  Agricultural-interest 
Commission  places  the  North  American  workman  above 
the  English  in  good  conduct,  fidelity,  and  interest.  A 
Berlin  woodcutter  accomplishes  as  much  in  ten  days  as  an 
Kast  Prussian  in  twenty-seven  days.  (Hoffman.)  English 
planters  on  the  Hellespont  prefer  to  pay  Greek  laborers 
ten  pounds  sterling  a  year  and  their  keep  rather  than 
Turkisli  laborers  three  pounds.  So  the  Malay  field- 
laborer  gets  two  and  a  half  dollars  per  month,  the  Mala- 
bar four,  the  Chinese  six." 

Perhaps  equally  important  in  production  are 
the  distinctively  moral  qualities  of  men,  and 
the  social  and  moral  conditions  in  which  they 
live  and  for  which  they  are  largely  responsible. 

Under  modern  conditions  every  corner  of  the 

world  does  business  with  almost  every  other. 

Business    affairs    are    complex,    of 

Moral  qualities.  .        ,  t      i  •    i  i 

enormous  magnitude,  and  highly 
centralized.  Great  factories,  employing  thou- 
sands of  men,  sell  goods  all  over  the  world. 
Their  force  of  officers,  clerks,  and  agents  is 
necessarily  large.  The  system  of  buying  and 
selling  on  credit  is  widespread.  Business 
must  therefore  be  largely  done  on  terms  of 
trust  and  confidence.  A  high  moral  develop- 
ment in  certain  directions  is  essential  to  the 
success  of  this  system,  and  any  society  lacking 
in  lliis  respect  must  suffer  tliereby.     Not  only 


MAN  AND  ENVIRONMENT  19 

tliis,  but  under  present  conditions  most  men 
must  be  wage-earners  serving  under  employers. 
The  productive  effectiveness  of  society  must 
tlierefore  largely  depend  upon  the  good  faith  of 
the  employees. 

No  advanced  society  can  reach  its  highest 
possibilities  in  production  if  men  are  not  free 
to  work  for  their  own  benetit  and, 
if  they  so  desire,  under  their  own 
direction.  Labor  must  be  voluntary  or  it  will 
not  be  vigorous  and  care-taking.  Slavery  or 
any  other  form  of  severing  reward  from  effort, 
weakens  the  springs  of  motive,  while  at  the 
same  time  relaxing  the  energy  of  those  who 
wrongly  profit  thereby.  Feudalism  in  the 
middle  ages  suffered  by  this  defect. 

Likewise,  no  society  which,  through  disorder, 
crime,  war,  or  over-taxation,  unsettles  the  con- 
nection between  industry  and  reward, 
can  fail  of  enfeebling  its  productive 
forces.     Security  of  life,  property,  and  invest- 
ment is  essential  to  high  economic  efficiency. 

Again,  in  no  society  in  which  people  lack  in 
forethought  for  the  future  will  work  go  on,  un- 
less under  stress  of  immediate  need. 
The  ability  to  wait,  to  see  ahead, 
and  to  provide  fi)r  the  far-off  want,  drains  the 


20  ELEMENT ABY  ECONOMICS 

land,  clears  the  forests,  plans  the  macliinery, 
builds  the  railroads,  and  constructs  the  fac- 
tories. 

But  most  important  among  the  characteristics 

of  man  as  producer  are  his  intellectual  powers 

and  acquirements.      If  we  coni])are 

Intellectnal 

powers  and        modern  industrial  processes  with  the 

acquirements.  ^i       i  r  •       i.    j_-  ±. 

methods  oi  ancient  times,  we  get 
some  notion  of  the  importance  of  science  and 
art  in  production.  Especially  in  the  world  of 
economics  is  it  true  that  knowledge  is  power. 
The  savage  made  an  enormous  step  forward 
when  he  acquired  the  knowledge  of  the  bow  and 
rod.  Tools  increase  by  many  fold  the  effec- 
tiveness of  human  energies.  But  when,  by  the 
use  of  machinery,  man  has  harnessed  to  his  aid 
the  forces  of  nature,  tlie  field  of  progress  is  in- 
finitely widened.  By  spindle  and  loom  he  mul- 
tiplies his  product  by  hundreds.  Steam  and 
electricity,  the  printing  press,  the  cotton  gin, 
and  the  countless  contrivances  which  make  of 
every  county  fair  a  collection  of  marvels,  and  of 
every  world's  exposition  a  display  of  miracles 
—  these  are  the  fruits  of  that  civilization  into 
which  each  one  of  us  is  born  as  to  a  free  heri- 
tajre.  And  remember  that  behind  the  art  and 
the  skill  in   all  these  processes  and  methods, 


MAN  AND  ENVIIiONMENT  21 

there  is  a  world  of  pure  science.  No  one  has 
grown  more  grain  than  the  cliemist.  The  dif- 
ficult [)r()1)lenis  of  industry  are  wrought  out  in 
the  laboratory  of  the  specialist.  The  investiga- 
tors and  the  inventors  have  revolutionized  the 
oijinions  and  the  organization  of  the  modern 
world.  The  ruling  forces  of  civilized  life  are 
the  intellectual  forces.  The  moral  code  of 
eighteen  hundred  years  ago  left,  indeed,  not 
much  to  be  added.  Laws,  governments,  insti- 
tutions, science,  art,  invention,  and  discovery, 
—  these  are  the  facts  which  measure  the  dis- 
tance between  civilization  and  savager}'.  In 
these  directions  the  progress  of  mankind  is 
seemingly  without  limit. 

SUGGESTIVE  QUESTIONS 

To  what  zones  is  civilization  mostly  confined?     Why? 

Where  did  it  originate?     Why? 

In  which  direction,  north  or  south,  has  it  moved? 
Why? 

What  physical  reasons  do  you  find  for  the  lead  which 
western  Europe  has  taken  in  civilization? 

What  is  the  trouble  with  the  polar  regions  in  this  re- 
gard? With  the  tropics?  In  (d)  human  needs,  (ft)  ease 
of  satisfaction? 

What  determines  the  character  of  industries  in  Can- 
ada?    In  Colorado?     In  the  Southern  States? 

What  natural  resources  have  nuide  l^igland  the  lead- 
ing manufacturing  country  of  the  world? 


22  ELEMENTARY  ECONOMICS 

Explain  by  natural  advantages  England's  commercial 
and  maritime  siiprpinacy. 

In  wliat  sense  ^^■as  the  American  Rebellion  a  question 
of  climate? 


CHAPTER   III 

UTILITY   AND   WEALTH 

Can  matter  be  destroyed  ?  Or  created  ?  How  about 
force  ? 

What  is  the  law  of  the  conservation  of  energy? 

What  do  we  mean  when  we  say  that  coal  has  been 
produced  ? 

What  change  is  wrought  by  combustion  ?  By  decay? 
By  digestion  ? 

In  what  respects  do  human  needs  coincide  with  the 
needs  of  the  brute  creation  ? 

In  what  respects  are  there  differences  ? 

Do  brute  needs  expand  greatly  in  scope  or  intensity? 

Why  do  men  produce  wealth  ? 

Do  you  think  of  any  attribute  common  to  all  things 
which  are  desirable  ? 

If  you  had  ten  dollars  to  spend  what  would  you  do 
with  it? 

Would  you  probably  buy  one  thnig  or  several? 

Which  thing  would  you  choose  if  j'ou  had  the  money 
to  buy  but  one  ? 

Are  things  of  unvarying  desirability  to  all  men?  Of 
all  nations?  In  all  seasons?  In  all  ages?  Give  exam- 
ples. 

What  conditions  must  exist  (a)  as  to  men,  (ft)  as  to 
the  thing,  in  order  that  it  be  useful  ? 

Books  are  not  useful  to  savages.  Why?  But  are 
useful  to  civilized  men.     Wliy? 

23 


24  ELEMENTARY  ECONOMICS 

Is  this  a  material  diiYerence  ? 
Is  usefulnfss  a  quality  or  a  relation?     Why? 
What  are  the  two  terms  in  the  relation? 
What  is  matter?     What  is  it  made  of? 
What  is  an  atom?     How  do  you  know  that  there  are 
any  ? 

13.  The  French  economist,  Gide,  neatly  ob- 
serves that  "The  concern  of  the  economist  is 
Desires  ana  ^^i^li  the  wants  of  men,  —  of  the 
utility.  lawyer,    with   his    rights,  —  of   the 

moralist,  with  his  duties."  Man  is  a  creature 
of  needs  and  desires.  Primarily,  and  as  a  con- 
dition to  his  mere  existence,  he  requires  food, 
commonly  also  clothing  and  shelter.  He  has 
appetites  for  art,  music,  philosophy,  cigars,  and 
vice.  He  desires  comforts  and  luxuries,  pro- 
tection from  the  violence  of  nature,  from  the 
wrongs  of  men,  and  from  the  attacks  of  beasts 
and  microbes.  He  wants  his  steak  broiled  and 
his  clothes  brushed.  He  likes  to  be  preached 
to  and  sung  to.  He  wants  books  and  boats  and 
race-horses,  laces,  parks,  theatres,  and  eye- 
glasses, chairs,  balloons,  railroads,  panoramas, 
fortune-tellers,  phrenologists,  and  humbugs. 
In  a  secondary  way  he  wants  the  machines  and 
inventions  and  tools  and  processes  by  which  his 
primary  wants  ai-e  helped  towards  satisfaction. 
Look  at  the  price-currents,  the  tariff  schedules, 


UTILITY  AND    WEALTH  25 

the  inventories  of  stocks  in  trade,  or  the  adver- 
tising pages  of  tlie  daily  paper,  and  you  get 
some  notion  of  his  manifold  desires.  He  wants 
also  love  and  pity  and  respect  and  place,  and 
sometimes  these  also  are  bought  and  sold  upon 
the  market.  All  these  things  he  wants  because 
they  minister  to  his  desires  —  that  is  to  say, 
because  they  are,  in  his  opinion,  useful  to  him. 
The  one  characteristic  common  to  all  objects  of 
human  desire  is  this  quality  of  service  to  a 
human  requirement.  This  attribute  of  service- 
abilit}'  the  economists  term  utility/.  That  is, 
the  term  utility  is  used  in  economics  to  mean 
desirability  in  relation  to  a  person  who  desires. 
The  thing  or  fact  possessing  this  attribute  of 
utility  is  called  a  good.  Wealth  includes  all 
material  goods  that  have  value. 

14.  Note  that  the  commendable  character  of 
the  desire  in  question  or  the  good  sense  of  its 
satisfaction  is  not  suggested  in  the  p^jjity  ^g  ^^^  ^ 
economic  use  of  the  word  utility,  moral  question. 
Men  put  forth  effort  and  undergo  privation  for 
the  possession  of  whiskey,  cigars,  and  burglars' 
jimmies,  as  well  as  for  food,  or  statuar}',  or  har- 
vest machinery.  As  long  as  men  are  influenced 
by  evil  purposes,  or  by  ignorance,  to  buy  and 
sell  foolishness  and  evil,  so  loncf  the  student 


26  ELEMENTARY  ECONOMICS 

must  recognize  these  desires  as  economic  facts, 

and   the    commodities  as  of   market  standing. 

Whether   we    like    it   or   not,    utility,    as    an 

economic  term,  means    merely  adaptability  to 

human  desires. 

15.    To  produce  is  not  to  create.     So  far  as 

we  know,  neither  matter  nor  force  can  be  created 

or  destroyed.     The  law  of  the  con- 
Men  do  not 
create  but         scrvatiou  of   energy  appears  to  be 

rearrange.  ^£  universal  validity.  Waste  and 
decay  are  the  mere  breaking  apart  of  matter  — 
the  taking  on  of  new  forms  —  the  undergoing 
of  new  distributions.  Motion  may  be  changed 
to  heat,  heat  to  electricity,  but  the  equivalence 
is  constant  if  all  wastes  and  leakages  are  al- 
lowed for. 

Economic  production  is  the  putting  of  things 
into  places,  combinations,  or  times  so  that  the 
things  take  on  or  increase  their  usefulness  — 
that  is  to  say,  acquire  fitness  for  satisfying 
human  needs  and  desires.  The  growing  of 
wheat,  for  example,  is  merely  a  process  of  se- 
lecting and  combining  materials  already  exist- 
ing in  the  earth  and  the  air.  Dirt  may  be 
roughly  described  as  the  right  thing  in  the 
wrong  place.  A  drop  of  syiup  on  the  floor  or 
on  the  tablecloth  is  fiUli;   in  a  dish  it  is  food. 


UTILITY  AND    WEALTH  27 

So,  to  change  the  location  of  a  thing,  the 
mere  act  of  transportation  —  for  example,  rais- 
ing iron  from  the  mines  or  bringing  soda  from 
the  plains  — is  an  act  of  production.  Likewise 
mere  preservation  may,  through  lapse  of  time, 
serve  as  production,  as  in  the  keeping  of  ice 
from  winter  to  summer. 

16.  Thus  to  measure  wealth  in  any  degree 
in  terms  of  material  existence  is  misleading. 
There    is   no    more    matter   in    the 

There  is  no  ma- 

world  at  present  than  there  was  a  teriai  measure 
thousand  years  ago;  but  matter  has  °  ^^**  • 
been  modified  so  as  better  to  answer  human 
needs.  The  house  which  was  mere  clay  or 
stone,  the  cloth  the  material  for  which  was  not 
grown  but  was  in  the  earth  or  the  air,  are  now 
wealth  to  mankind.  Work  produces  no  new 
matter,  no  new  forces.  The  applicability  of 
matter  and  force  to  human  uses  does  change. 
The  iron  in  the  earth  mined,  melted,  freed  from 
impurities,  hammered  and  fashioned,  forms  a 
pocket  knife.  Nothing  has  been  added  to  the 
matter  of  the  earth;  something  has  been  added 
to  the  wealth. 

Thus  as  human  needs,  desires,  and  know- 
ledge expand,  there  is,  by  that  very  fact,  room  for 
an  increase  in  wealth.     "Of  the  one  hundred 


28  ELEMENTARY   ECONOMICS 

and  forty  thousand  species  of  vegetable  life  we 
How  wealth  in-  ^'"^^  ^^^J  tln'ce  hundred  of  sufficient 
creases.  value  to  Cultivate;  and  of  the  thou- 

sands of  species  in  the  animal  kingdom  we  make 
use  of  but  about  two  hundred  "  (De  Candolle). 

17.  Wealth  therefore  develops  along  two 
lines:  (1)  by  changes  which  man  impresses 
upon  the  outside  world  in  making  it  more  fit 
for  his  uses;  (2)  by  changes  in  man  himself  — 
in  strength,  in  knowledge,  in  desires  —  by 
which  he  becomes  better  able  to  make  use  of 
the  outside  world.  Pianos  could  not  be  wealth 
in  a  society  lacking  musical  tastes,  or  books 
wealth  to  savages.  That  a  mineral  becomes 
wealth  presupposes  a  human  use  to  which  it 
may  be  put,  an  ability  to  mine  the  mineral,  and 
a  knowledge  to  adapt  it  to  use.  It  is  this 
capacity  of  service,  this  attribute  of  utility, 
which  marks  all  objects  of  desire  and  brings 
them  within  the  broad  classification  cdWed  goods. 

18.  There   are,    hoAvever,    goods   which   are 
„          ,         commonly  termed    not    wealth   but 

How  services  -^ 

differ  from  services.  A  book  is  wealth,  or  a  sheet 
of  music,  or  a  piano.  These  afford 
us  pleasure  or  advantage.  They  may  be  pre- 
served, handled,  possesserl.  That  is  to  say, 
they  are  fixed  and  embodied  in  matter.     But 


UTILITY  AND    WEALTH  29 

we  are  equal I3'  and  as  truly  served  by  the 
advice  of  the  physician,  by  the  efforts  of  the 
singer  or  the  actor,  by  orators,  preachers,  and 
teachers.  These  goods,  which  are  termed  by 
the  economists  services,  are  very  important 
facts  in  life,  and  furnish  the  occasion  for  a 
large  share  of  our  expenditures.  On  the  street 
car  or  the  railroad  we  pay  for  being  carried. 
The  policeman,  the  judge,  and  the  lawyer 
supply  us,  in  security,  direction,  and  advice, 
with  things  we  acutely  need.  From  house- 
hold servants  we  purchase  attention,  care,  and 
attendance.  In  truth,  it  is  sometimes  hard  to 
draw  the  line  between  services  and  commodi- 
ties. We  eat  the  broiling  of  our  steak  as  truly 
as  our  steak.  Thus  the  performance  of  a  ser- 
vice must  be  accounted  an  act  of  production, 
since  it  is  the  creation  of  utility. 

SUGGESTIVE  (QUESTIONS 

What  do  you  mean  by  intrinsic  or  extrinsic  utility? 

Intrinsic  or  extrinsic  value? 

Are  charms  and  relics  now  greatly  prized?  Have  they 
changed  their  intrinsic  qualities  ? 

Are  color  and  taste  intrinsic  qualities? 

Did  Niagara  roar  before  there  were  ears?  What  is 
sound? 

Is  heat  a  quality  of  an  outside  thing,  or  a  mere  effect 
upon  the  senses? 


30  ELEMEXTARY  ECONOMICS 

Is  the  difference  in  value  between  winter  and  summer 
ice  an  intrinsic  or  an  extrinsic  matter? 

Why  not  call  singing  wealth  ?  or  acting  ?  or  preaching  ? 

A  dog  has  been  trained  to  guard  sheep;  is  this  an 
increase  in  wealth?  Is  it  a  material  or  an  immaterial 
increase? 

Is  the  ability  to  sing  wealth? 

Define  services. 


UTILITY   AND   WEALTH  (Continued) 

Is  food  wealth  ? 

Is  the  strength  which  comes  from  it  wealth  ? 

Is  medicine  wealth  ? 

Accurately  speaking,  can  any  one's  face  be  his  fortune? 

Suppose  that  A  devotes  a  year  to  clearing  the  land  for 
a  farm  ;  B  to  constructing  a  locomotive ;  C  to  perfecting 
an  invention ;  D  to  the  study  of  a  profession ;  which  of 
these  are  cases  of  wealth-production  ? 

Are  intellectual  acquirements  wealth  ? 

Is  health  wealth ?  Eyesight?  A  good  voice?  Strong 
muscles?  Inherited  character?  Our  digestive  apparatus? 
Our  bodies?     Our  minds? 

19.  A  distinction  must  be  made  between 
those  things  in  the  outside  world  which  are 
Man,  and  things  useful  to  man  and  those  things 
ontaideman.  ^vliicli,  in  the  hist  analysis,  are  a 
part  of  man  himself.  Bread,  for  exam^Dle,  is 
clearly  enough  an  outside  good,  an  external 
thing  adapted  to  liuman  needs.  How  after  it 
is  eaten  ?     We  say  that  it  has  been  consumed. 


UTILITY  AND    WEALTH  31 

It  no  longer  exists  as  bread.  Its  service  has 
been  rendered  in  maintenance  of  life  or  increase 
of  strength.  But  how  shall  we  regard  this  re- 
sult, this  strength?  In  the  primary  division  of 
economic  facts  into  man  and  environment,  does 
bread  fall  into  one  classification  and  strength 
into  another?  The  thing  was  bread;  it  is  now 
life  or  strength.  Is  it  now  something  possessed 
by  man,  or  is  it  a  part  of  man  himself?  Is  it 
subject  or  object,  possessor  or  possessed,  man  or 
environment? 

Man  is  the  beginning  and  the  end  of  produc- 
tive effort.  The  creation  of  utility  is  purposed 
by  him  for  his  consumption.  He  puts  forth 
effort  that  he  may  enjoy  its  rewards.  Tlie 
economic  cycle  begins  and  ends  in  him.  He 
works  that  he  may  live.  He  is  the  producer 
and  not  the  thing  produced.  The  more 
strength  the  better  producer  —  later 

Only  the  outside 

the  larger  product ;  but  the  strength  things  are  goods 
is  not  product.  So  the  mixtures 
prepared  by  the  chemist,  and  the  doctor's  com- 
poundings  of  medicinal  gums,  fall  within  the 
class  goods,  while '  my  good  health  to  resist 
contagion  and  your  good  sense  to  avoid  it  are 
ranked  as  human  attributes. 

Note,   however,    tliat   while    the    knowledge 


32  ELEMENTAliY  ECONOMICS 

which  avoids  disease  is  a  human  attribute  and 
is  not  wealth,  the  outside  fact  from  which  this 
knowledge  is  obtained,  the  book,  or  the  advice 
of  the  physician,  is  either  wealth  or  service. 
The  mental  power  of  the  physician,  his  know- 
ledge, however,  is  not  wealth;  it  is  the  source 
of  his  ability  to  do  a  useful  thing,  to  speak  a 
word  or  write  a  prescription  which  shall  be 
of  advantage  to  another  human  being.  This 
knowledge  is  a  part  of  the  physician's  equip- 
ment for  the  production  of  utility.  When  this 
equipment  shall  come  to  service  the  result  will 
be  a  good.  As  equipment,  however,  it  is  not 
utility  or  good  but  physician. 

QUESTIONS 

Define  utility. 

Why  is  not  knowledge  wealth  ? 

Arc  all  outside  goods  wealth? 

How  about  services?     What  is  the  line  of  distinction? 


CHAPTER   IV 

THE  FACTORS  IN  PRODUCTION 

In  what  respects  has  man  changed  his  environment  to 
suit  his  purposes  ?    Give  instances. 

What  tilings  would  you  need  when  going  into  wheat 
raising?     Into  piano  making? 

\Miat  dillerent  reasons  might  one  have  for  saving 
money  ? 

What  for  hiring  money? 

What  for  hiring  land  ? 

20.  Suppose  that  there  is  a  demand  for  some 
commodity,  fish,  for  example.  Given  this  de- 
sire for  fish  as  motive  force,  we  have  . 

Are  man  and 

now  to  inquire  wliat  other  condi-  opportunity 
tions  are  essential  to  ohtaining  the 
commodity.     In  the  simplest  possible  case  two 
facts  must  concur,  —  there  must  be  a  fisher  and 
a  place  for  fishing,  —  man  and  environment. 

But  ordinarily  something  more  than  the 
primitive  environment  is  necessary;  in  most 
cases  of  production  some  sort  of  tools  or  appli- 
ances must  be  had.  Suppose  it  to  be  raw  cot- 
ton that  one  wants  to  produce.  There  must  at 
D  33 


34  ELEMEXTARY  ECONOMICS 

least  be  seed ;  there  oiiglit  to  be  various  appli- 
ances to  be  used  in  the  process  of  cultivation. 
But  now  suppose  that  the  cotton  is  intended  to 
be  made  into  cloth.  In  this  case  there  must 
certainly  be  more  than  worker  and  opportunity 
to  work ;  there  must  also  be  something  to  work 
with. 

Mankind  has  a  world  in  which  to  live  and 
work,  land  to  cultivate,  streams  to  make  his 
wheels  turn,  water  to  convert  into  steam,  and 
coal  with  which  to  convert  it.  But  something 
more  is  needed.  Even  the  primitive  fisherman 
finds  it  desirable  —  often  indeed  necessary  — 
to  have  poles,  lines,  and  nets.  Farming  would 
not  greatly  prosper  with  nothing  for  the  case 
but  a  farmer  and  the  natural  opportunity.  The 
farmer  needs  tools  and  machinery ;  he  must  do 
some  "getting  ready  "  or  some  one  must  have 
done  it  for  him. 

The  weaver  requires  still  other  and  more 
complicated  appliances.  At  least  he  must  have 
liis  hand  spinning-wheel  and  his  loom.  His 
work  gains  enormously  in  effectiveness  when  he 
is  able  to  work  in  a  factory  with  great  power 
engines  to  help  him,  and  with  the  spindle  and 
loom  of  modeiJi  industry. 

21.    Between  man  and  nature  tliere  is,  then, 


THE  FACTORS  IN  PRODUCTION  35 

a  kind  of  intermediate  term,  that  wliich  we 
call  capital.  The  things  which  are  f^^^^^  ^^^  ^^, 
called  capital  are  not  a  part  of  man,  chinery  capital, 
they  are  a  part  of  his  surroundings,  and  yet 
differ  from  land  or  nature  in  this,  that  they  are 
the  result  of  man's  activity;  they  are  an  addi- 
tion to  the  original  condition  or  opportunity. 
Ultimately  speaking,  capital  is  nothing  but 
stored-up  labor.  ^  When  one  wishes  to  bring 
about  some  particular  result,  it  is  often  best  to 
take  a  roundabout  method.  If,  for  example,  a 
man  intends  to  dig  up  stones,  it  may  be  best,  if 
he  has  much  of  it  to  do,  first  to  make  a  lever 
or  crowbar  Avith  which  to  apply  his  strength 
or  multiply  its  effectiveness.  If  he  intends  to 
raise  wheat  he  will  ordinarily  find  it  best  first 
to  adapt  his  land  to  his  purposes  b}'  clearing, 
ploughing,  and  manuring,  or  by  improving  it  in 
some  other  way,  or  by  obtaining  work-animals 
to  aid  him  in  his  task.    This  labor  of  preparation 


1  The  student  is  not  to  regard  this  statement  as  a  definition, 
but  as  an  account  of  the  origin  of  capital.  A  n)achine  is  a  typi- 
cal example  of  capital.  Ordinarily  a  machine  is  proiluced  in 
some  measure  by  the  aid  of  machinery  already  e.visting  —  that 
is  by  capital.  So  again,  the  wood  work  of  the  machine  was  pro- 
duced by  the  land.  But  it  is  none  the  less  true  that,  traceil  far 
enough  back,  all  that  which  is  not  due  to  the  original  environ- 
ment is  due  to  the  effort  which  has  been  applied  lo  that  environ- 
ment. Strictly  detincd,  capital  is  all  wealth,  other  than  laud, 
used  to  aid  iu  the  production  of  wealth. 


36  ELEMENTARY  ECONOMICS 

is  sometimes  enormous,  as  when  the  giant 
factory  is  erected,  with  all  the  machinery  and 
appliances  which  it  contains ;  or  when,  instead 
of  carr3ang  things  u})on  the  back,  men  build 
costly  roads  and  bridges,  rear  beasts  of  burden, 
and  construct  wagons  and  drays ;  or,  going  still 
further,  construct  great  railroad  or  electric  sys- 
tems with  all  their  costly  and  intricate  arrange- 
ments of  tracks,  cars,  locomotives,  and  stations. 
All  these  extensive  preparations  for  production 
are  really  the  same  thing  as  the  loom  or  the 
plough:  they  are  savers  or  multipliers  of  human 
power.  We  call  them  labor-saving  appliances ; 
they  are  forms  of  capital. 

Thus  witliin  his  environment  man  thinks 
and  acts,  works,  manages,  and  contiives.  He 
has  his  own  energies  to  work  with,  land  and 
nature  to  work  through  and  upon  ;  with  the  lielp 
of  these  he  fasliions  and  prepares  his  different 
appliances  which  we  call  capital. 


f  man.. 

Factors  in  production  J  ~~"  f  capital. 

[  environment  \ 

land. 


22.  The  advantages  derived  from  machinery 
ill  ]»roduction  are  commonl}^  due  to  the  fact  that 
tlje  macliine  brings  into  more  effective  co-opera- 


THE  FACTORS  IN  PliODUCTION  37 

tion  with  man  the  forces  of  nature.    Tliis  truth 
is  expressed  clearly  in  the  familiar        ,,,.,, 

'■  ■'  In  what  lie  the 

distinction  between  liand-labor  and  advantages  of 
machine-labor.  It  is  probable,  how-  "'^'^  ^^^^ 
ever,  that  we  fail  to  realize  to  the  full  the 
wonderful  possibilities  and  meaning  of  ma- 
chinery for  mankind  and  liuman  civilization. 
The  trip-hammer  and  the  pile-driver  strike  the 
blows  of  gravity.  Water  power  is  the  pressure 
of  gravity  harnessed  to  the  service  oi  men. 
Niacrara  is  about  to  turn  the  wheels  of  industrv 
for  half  the  cities  of  the  East.  The  tides  and 
the  winds  are  not  yet  fully  tamed  to  our  uses, 
but  long  ago  were  discovered  the  treasures  of 
power  where  the  sun  has  stored  up  its  heat  in 
the  deposits  of  coal.  We  may  yet  learn  to 
gather  the  energy  of  heat  rays  directly,  as  Ave 
are  now  rapidly  finding  out  how  to  turn  to  our 
service  the  pulse  and  throb  of  electric  energy. 
But  even  ages  ago  the  farmer  had  learned  to 
plant  his  seed  and  wait  for  the  sun  and  the 
rain  to  mature  the  harvest,  while  the  wind  was 
set  to  pump  the  water  and  grind  the  corn. 

SUGGESXmS  QUESTIONS 

Mention  some  of  the  great  inventions.     Sliow  whether 
they  have  benefited  mankind  and  how. 


38  ELEMEXTARY  ECONOMICS 


Mention  ciises  in  which  scientific  knowledge  has  modi- 
tied  the  processes  of  production. 

What  effect  does  macliincry  liave  on  the  aggregate 
social  product  (social  dividend)  ?  On  average  consump- 
tion of  goods? 

Does  capital  iielp  the  borrower?  liow?  Society? 
How? 

Does  the  land  produce  the  crop?  Does  man  produce 
the  crop?     Has  capital  any  share  in  it? 


WAGES,    PROFITS,    KKNTS,    AND    INTEREST 
DEFINED 

Does  the  wage-earner  in  tlie  factory  produce  the  clotli? 

Who  else  help? 

How  about  the  designer  of  tlie  patterns  ?  The  chem- 
ist who  compounds  the  dyes?  The  investigator  who 
worked  out  the  formulas?  The  capitalist  who  furnishes 
the  machines?  The  office-clerk  who  keeps  the  books? 
The  foreman  who  oversees?     The  owner  who  directs? 

Who  produced  the  l)uilding? 

Who  produced  the  food  for  the  carpenters  and  the 
masons  while  they  worked? 

W'iio  paid  for  the  food?  Where  did  he  get  the  where- 
with to  pay  ? 

Why  does  the  owner  want  men  to  work  for  him? 

Why  should  not  the  men  prefer  to  do  something  else? 

Why  does  the  owner  consent  to  pay  interest? 

Would  you  call  interest  received  on  a  note  profit? 

Rent  of  a  liouse? 

A  dividend  on  bank  stock  ? 

Salary  receiveil  and  spent? 

Salary  received  and  put  by? 

Wages  received  and  spent  ? 

Wages  received  and  put  by? 


WAGES,    PROFITS,    RENTS,    INTEREST      89 

23.  It  is  coinmoiily  true  that  useful  things 
are  produced  by  the  union,  in  varying  pro- 
portions, of  the  different  productive  agents. 
Often,  however,  it  is  true  that  the  capital  be- 
lonsrs  to  one  man  and  the  land  to  another.  It 
is  often  true,  also,  that  one  man  hires  other  men 
to  work  for  him.    Sui)i)Ose,  for  exam- 

^  ^  What  factors 

pie,  that  you  start  a  market  garden,  co-operate  in 
renting  land,  borrowing  your  tools,  ^^°  "^^'""^ 
or  the  money  with  which  to  buy  them,  and  hir- 
ing a  man  and  a  boy  to  work  for  you.  You  must 
pay  to  the  landowner  something  for  the  use  of 
his  land,  —  to  the  man  who  supplies  the  tools 
something  for  his  capital,  —  to  your  employees 
something  for  their  work.  What  is  left  after 
your  different  expenses  are  covered  goes  to  j'ou 
as  the  reward  of  your  individual  effort  —  your 
thinking,  your  planning,  and  your  risk. 

These  different  compensations  are  given  dis- 
tinctive names  in  Political  Economy. 

Your  own  reward  is  profit. 
Your  laborers'  reward  is  wages. 
The  landowner's  reward  is  rent. 
The  capitalist's  reward  is  interest. 


r  wages. 

1 

man,  remunerated  in  -' 


Productive 


I.  profits. 

^Seii^^s       I  j  capital— in  interest. 

[  environment  ! 

L  land  —  in  rent. 


40  ELEMENTARY  ECONOMICS 

24.  There  is  room  for  confusion  with  regard 
to  this  terra  profit. 

The  word  is  used  in  ordinar}-  affairs  with  per- 
plexing indefiniteness.  One  man  means  by 
Necessary  to  profit  that  surplus  which  remains 
use  the  word      ^^  |,-j^j   ,^f^g^,  ehar^iucr,  acraiiist  the 

profit"  accu-  o      ^        '^ 

rately.  gross    gain,   interest  and   rent   and 

a  fair  compensation  for  his  own  services. 
Another,  a  storekeeper,  owning  his  own  store- 
building  worth  'IfSOOO  and  carrying  a  stock  of 
goods  worth  -^10,000,  makes  a  gross  gain  per 
year  on  his  sales  of  *4000.  This  $4000  is 
merely  the  difference  between  the  cost  price 
and  the  selling  price  of  the  goods  he  has  sold. 
It  is  not  unusual  to  find  this  whole  $4000 
included  in  the  term  profit.  A  second  mer- 
chant would  insist  upon  deducting  interest  on 
the  capital  invested  in  land  and  stock,  say  $900, 
and  would  regard  the  residue  of  $3100  as  profit. 
Another  would  deduct  also  the  value  of  his  own 
time  and  effort,  say  $1500,  and  would  allow 
but  $1G00  to  stand  for  profit.  Yet  another 
would  look  at  his  inventory  of  wealth  at  the 
end  of  the  year  as  compared  with  the  beginning, 
and  wtmld  regard  as  profit  whatever  increase 
had  been  made,  treating  his  living  expenses  as 
j)art  of  his  expenses  of  business. 


WAGES,   PROFITS,    RENTS,    INTEREST      41 

Were  one  to  ask  a  real  estate  speculator  what 
profit  he  had  made  ui)()ii  a  lot  costing  him  $1000 
which  he  had  held  for  one  year  and  sold  for 
•11500,  he  would  answer  either  $500  or  |500 
minus  interest,  and  if  asked  what  he  had  done 
with  the  profit,  he  would  have  no  hesitation  in 
replying  that  he  liad  used  it  in  his  living  ex- 
penses, nor  would  it  ever  occur  to  hiiu  in  lixing 
his  profit  to  deduct  the  wages  of  his  own  super- 
intendence. His  business  is  to  make  profits 
and  to  live  off  them  as  a  wage-earner  lives  off 
his  wages.  So  with  the  trader  in  grain  or  live 
stock.  And  in  no  one  of  all  these  cases  avouM 
it  ordinarily  occur  to  charge  up  anything  for 
risk  of  loss. 

Crusoe,  if  asked  at  the  close  of  liis  harvest 
season  what  the  season's  work  had  profited  him, 
or  what  wages  he  had  made,  would  probably 
interpret  the  question  as  an  in(|uiiy  into  the 
effectiveness  of  his  season's  labor  after  deduct- 
ing his  outlays  of  seed  and  the  wear  and  tear  of 
his  primitive  appliances.  If  he  could  have 
done  better  on  another  piece  of  land,  or  with  a 
dilferent  crop,  he  would  not  find  it  unnatural  to 
say  that  another  course  would  have  been  more 
profitable.  In  this  sense  evidently  all  produc- 
tive effort  is  profitable  as  compared  with  idle- 


42  ELEMENTARY  ECOXOmCS 

ness.  Different  lines  of  production  are  only 
relatively,  never  absolutely,  unprofitable  as 
long  as  anything  remains  above  expenditure. 

25.    The  sense  in    which  the    term  is    used 

in    this    Crusoe    illustration,   is  the    economic 

sense    extended   and   developed   to 

Profit  may  be  ^ 

absolute  or        'T-Pply  to  the  complex   relations  of 
the   business  world.     In  this  view 
profit  is  one  form  of  remuneration  for  labor  — 
for  human  effort. 

The  existing  industrial  system  is  a  competi- 
tive system  organized  upon  lines  of  division  of 
labor  and  exchange.  Social  life  adds  important 
factors  to  the  Crusoe  problem.  Division  of 
labor  becomes  possible  only  on  terms  of  possible 
exchange  of  products.  We  will  suppose,  for 
illustration,  that  a  man  needs  or  desires  ten 
different  sorts  of  commodities  which  he  may,  if 
he  will,  produce  for  himself.  If  he  finds  that 
by  i)roducing  some  few  or  one  of  these  com- 
modities in  large  quantities,  and  obtaining  the 
others  of  tlie  ten  by  exchanging  for  them  some 
portion  of  liis  i>roduct,  he  can  thereby  obtain  in 
the  aggregate  a  greater  sum  (jf  satisfactions 
than  by  the  other  method  of  direct  production, 
he  will  make  use  of  the  opjioitunities  afforded 
by  exchange,     in   this  he  simply  follows  the 


]\'Af;Es,  rnoFiTs,  rexts,  interest    43 

prospect  of  the  greater  profit,  and  if  the  out- 
come justifies  his  expectation  his  hil)or  is  rela- 
tively profitable.  Even  if  the  outcome  is 
disappointing,  his  labor  may  be  absolutely 
profitable. 

The  further  development  in  the  exchange 
system  by  which  the  producer  employs  not 
only  his  own  activities,  but  the  activities  of 
others,  —  immediately  in  the  form  of  services, 
or  remotely  in  the  form  of  commodities,  —  does 
not  involve  any  essential  modification  in  the 
nature  of  profit. 

26.  Profit  is  perhaps  best  regarded  as  one 
form  of  the  remuneration  of  labor,  and  as  essen- 
tially in  strict  parallel  with  wages.  Distinguished 
Had  usage  so  decreed,  the  two  terms  ^"^o™  wages. 
might  A\'ell  have  been  merged  in  the  one  term 
ti'a</es.^  But  as  the  terms  are  established  in  use, 
profit  points  to  remuneration  without  the  inter- 

1  The  student  should  be  warned  that  the  economists  do  not 
agree  in  the  definition  of  the  term  profit.  The  earlier  econo- 
mists considered  it  to  include  interest  and  pay  for  risk  as  well 
as  pay  for  time  and  care.  It  is  now  more  commonly  thought 
that  the  returns  on  capital,  as  such,  should  be  excluded,  being 
covered  by  the  term  interest;  though  it  is  not  always  easy  in 
practical  business  to  separate  interest  from  profit. 

Accurately  the  term  profit  seems  to  mean  the  wages  of  him 
who  takes  the  risk  —  on  whose  wealth  or  cre<lit  the  hazards  of 
the  business  rest,  and  to  whom  the  gains  of  good  management 
or  good  fortune  are  to  go.  If  the  profit  maker  is  a  borrower  or 
an  employer,  he  guarantees  fixed  sums  in  interest  and  wages. 


44  ELEMENTARY  ECONOMICS 

vention  of  an  employer,  —  where  the  hi])orer  is 
himself  the  projector  (imprenditor,  undertaker, 
entrepreneur,  Unternehmer)  of  the  enterprise. 
Wages  indicate  the  intervention  of  an  employer. 
Profit  may  be  conceived  as  a  form  of  wages  re- 
ceived from  society  as  employer.  Rightly  con- 
sidered, all  individual  workmen,  other  than 
wage-earners,  are  entrepreneurs.  That  enter- 
l)rise  promises  to  be  relatively  profitable  which 
affords  the  prospect  of  a  better  return  to  the 
entrepreneur  than  with  equal  sacrifice  he  may 

lenders  and  waj^fe-earners  have  no  care  of  the  outcome  of  the 
business. 

The  real  difficulty  is  in  wliat  to  do  with  this  risk  share  of 
profit-maker's  return.  If  men  take  chances  of  loss,  they 
naturally  look  for  the  greater  gain,  if  the  enterprise  succeeds. 
Is  this  gain  a  part  of  profit  or  something  outside?  In  practical 
linsiness  it  is  hard  to  separate  this  risk  .share  from  the  rest,  just 
as  it  is  hard  to  divide  intere.st  into  payment  for  the  use  of  wealth 
and  payment  for  the  risk  of  not  getting  it  hack  —  that  is,  into 
pure  or  net  interest  and  risk  interest.  'J"he  l)est  way  on  the 
whole,  it  seems,  is  to  divide  gross  profit  into  pure  profit  and  risk 
profit. 

The  objection  to  this  is  tliat,  just  as  wlieii  one  lends  his  capi- 
tal, he  charges  something  extra  for  risk  and  calls  it  interest,  so 
when  he  puts  his  own  capital  at  risk  in  his  own  business,  it 
seems  hy  anahigy  that  he  sJiould  reckon  his  risk-gain  as  part  of 
his  interest  on  his  invested  cajiital.  Parti(;ularly  is  tliis  a  tak- 
ing view  when  we  recall  that  the  losses  of  any  enterprise  must 
really  be  paid  f)Ut  of  the  operator's  wealth.  Profit-makers  pay 
losses,  when  h»sses  come,  in  their  capacity  of  wealth  owners  and 
not  of  mere  oi>erators. 

P'roju  any  point  of  view  the  risk  fjuestion  is  an  awkward 
thing  to  handle;  but  as  we  shall  use  the  word,  pure  profit  is 
merely  an  aspect  of  wages.  This  use  seems  desirat)le  as  follow- 
ing out  the  distinction  between  man  and  environment. 


WAGES,  PROFITS,   RENTSy  INTEREST     45 

reasonably  expect  in  another  line  of  activity. 
And  If  no  line  of  activity  promises  i)rofit,  as 
compared  with  wac^e-earnin^^  or  with  produc- 
tion for  direct  personal  consumption,  the  entre- 
preneur can,  without  sacrifice,  betake  himself 
to  one  of  these  courses. 

27.  In  the  present  form  of  social  organiza- 
tion, that  life  Avhich  excludes  exchange  and 
any  form  of  industrial  interdependence  with 
one's  fellows,  is  practically  out  of  the  question. 
We  may  therefore  safely  consider  that  some 
one  of  the  different  forms  of  wage-earning 
furnishes  for  each  man  that  form  of  activity 
from  which  the  comparative  profit  of  any  other 
activity  is  to  be  estimated,  and  to  which,  meet- 
ing elsewhere  with  unsatisfactory  rewards,  he 
may  betake  himself  as  a  last  resort. 

From  this  point  of  view,  the  intimate  asso- 
ciation of  wages,  profits,  and  interest  becomes 
manifest.  If  wages  are  anywhere  found  to  be 
high,  profits  may  also  be  expected  to  be  high, 
—  in  any  event  as  high  as  wages,  —  since 
otherwise  employers  and  self-directed  laborers 
would  tend  to  become  wage-earners.  Also 
where  labor  is  productive  of  large  results  in 
goods,  capital,  which  is  an  indirect  application 
of  labor  to  like  ends,  maj'  normally  be  expected 


40  ELEMENTARY  ECONOMICS 

to  be  highly  productive  of  goods,  and  therefore 
to  command  a  high  rate  of  interest. 

SUGGESTIVE  QUESTIONS 

Does  nature  produce  anything?  Does  it  produce  every- 
thing ? 

Is  man  a  producer? 

What  do  you  call  his  productive  activity? 

Is  lahor  the  only  productive  thing? 

In  what  different  forms  is  labor  remunerated? 

What  aids  does  man  have  in  production? 

Does  he  consume  immediately  all  that  lie  produces? 
Why  not? 

What  do  you  call  that  part  of  this  residue  which  is 
used  as  an  aid  in  production?  What  do  you  call  its 
compensation  ? 

Is  a  lawyer  a  producer?  A  minister?  A  cook?  A 
factory  liand?  The  employer  of  a  factory  hand  ?  A  school 
teacher  ? 

What  do  you  call  their  respective  remunerations? 

A  farmer  has  a  farm  worth  81000,  machinery  and 
stock  worth  ijlOOO,  hires  a  man  at  iftoOO  per  year,  works 
himself,  gets  !$1000  worth  of  crop.  Apportion  this  into 
wages,  interest,  rent,  and  profits. 

A  carpenter  takes  the  contract  for  the  carpenter  work 
on  a  huilding  at  iJlOOO,  works  six  montiis  himself  and 
pays  his  men  sfiHOO.  It  cost  him  !S-"500  to  live  during  the 
six  months.  He  might  have  worked  by  the  day,  receiving 
$400  in  wages.     What  is  his  profit? 

Is  it  possible  to  have  a])solute  profit  and  relative  loss? 

"  pjvery  misery  that  we  miss  is  a  new  blessing;  there- 
fore let  us  Vje  thankful."  (Isaac  Walton.)  Criticise  this 
doctrine. 


CHAPTER  V 

VALUE 

If  employees  insist  upon  wages  more  than  equalling 
the  market  price  of  their  product,  what  will  the  employers 
probably  do  ? 

If  wages,  together  with  interest  and  other  outlays, 
leave  no  balance  for  profit,  what  result  is  probable? 

What  motives  would  induce  you  to  hire  laborers  at 
the  ruling  rates  of  wages,  or  to  borrow  money  at  the 
ruling  rates  of  interest? 

Is  labor  valuable  in  itself?     AVhat  fact  gives  it  value? 

Does  this  reasoning  apply  equally  to  capital  and  in- 
terest?    To  land  and  rent?     How? 

Why  do  some  producers  stop  producing  when  prices 
fall  ? 

What  do  they  do  then? 

What  commonly  fixes  the  price  which  the  country 
storekeeper  pays  for  eggs  ? 

When  one  hires  laborers,  borrows  capital,  or  rents  land, 
on  what  basis  is  it  decided  how  nuich  he  shall  employ  of 
any  one  of  these? 

Why  raise  beef  instead  of  mutton,  or  wheat  instead  of 
flax? 

28.  When  you  hire  hind,  ernph:)}'  hiborers, 
and  borrow  capital  for  the  purpose  of  raising 
garden  "truck,"  your  payments  of  rent,  wages, 

47 


48  ELEMENTARY  ECONOMICS 

and  interest  are  made  or  promised  in  antici- 
pation of  the  products  which  you  sell.  The 
„  ,  ,.    ,         amounts  which  you  will  consent  to 

Relation  be-  -^ 

tween  selling     pay  in  the  total  must  fall  inside  the 

price  and  wages,  i  •    i 

rent,  and  inter-  amount  which  you  expect  to  receivc 
®^*"  from  the  sale  of  your  product.   What 

you  have  left  above  your  outlays  is  your  own 
pay,  or,  in  technical  language,  your  profit.  If 
by  your  own  estimate  you  could  have  done 
better  in  some  business  other  than  market  gar- 
dening, you  would  not  have  tried  this  line  of 
production.  Thus  your  products  must  be  ex- 
pected to  cover  not  only  your  total  expense, 
but  as  well  an  indemnity  to  yourself  for  not 
having  done  something  else. 

There  is,  then,  in  all  cases  of  production  the 
question  of  what  men  —  capitalists,  landlords, 
wage-earners,  and  employers  — ■  are  to  share  in 
the  result,  and  in  what  proportion.  What  fixes 
how  much  you  shall  pay  in  wages  to  your 
laborers  in  order  to  get  their  aid  in  your  under- 
taking? What  determines  in  what  measure 
the  landlord  or  the  tool-owner  is  to  share  in 
the  i)roduct  toward  which  each  has  contributed  ? 
In  a  general  wjiy  of  course  you  pay  as  much  as 
you  must ;  tliey  make  you  jjay  as  much  as  they 
can.     But  how  much? 


VALUE  49 

What  you  can  at  tlie  outside  pay  depends  of 
course  upon  what  you  receive  for  the  product. 
It  is  time  then  to  analyze  tlie  processes  by 
which  market  prices  and  values  are  fixed. 

29.  In  most  lines  of  production  men  know, 
before  they  produce  a  thing,  pretty  nearly  what 
they  can  sell  it  for  after  it  is  pro-  Outlays  are 
duced.  The  stores  are  filled  with  pation  of  selling 
goods  and  there  is  every  day  a  fairly  P"°®' 
definite  price  for  them.  These  prices  change 
somewhat,  but  not  ordinarily  very  widely  or 
very  rapidly.  We  all  know  in  a  general  way 
about  how  much  most  things  are  worth.  Even 
with  such  things  as  crops,  people  know  months 
or  seasons  ahead  about  what  it  is  reasonable  to 
expect  in  prices,  and  each  farmer  plants  accord- 
ing to  his  "guess."  Taking  an  average  of 
years,  wheat  or  potatoes  or  hay  will  be  found 
to  command  a  fairly  definite  price. 

This  is  a  surprising  fact,  when  you  come  to 
think  of  it,  that  everything  has  its  reasonably 
definite  price  to-day,  and  that  we  Possible  to 
can  count  w^ith  reasonable  certainty  "tjmates^of 
upon  the  prices  of  the  future.     At  selling  prices. 
all  events  the  future  is  so  far  to  be  depended  on 
that  men  arc  willing  to  enter  this  or  that  line 
of  business,  or  to  undertake  this  or  that  line  of 


60  ELEMENTARY  ECONOMICS 

production,  receiving"  at  ilie  end  the  prices 
\\liicli  rule  wlicn  the  product  is  ready  to  be 
sold.  Tlic  piicos  which  rule  to-day  mostly 
furnish  the  basis  for  estimating  what  the  prices 
will  ])v.  One  kuow's  approximately  what  it 
will  cost  him  to  produce  a  given  article.  He 
can  tell  what  he  could  get  for  it  if  it  were 
ready  now.  He  can  foresee  roughly  what  he 
can  get  for  it  when,  after  a  few  days  or  months, 
it  shall  be  ready.  All  things  are  produced  for 
prices  as  they  are  or  as  they  are  expected  to  be. 
If  it  were  otherwise  —  if  there  were  no  basis 
for  hope,  no  [)lace  for  reasonable  expectation  — 
very  little  would  be  produced,  for  almost  all 
production  takes  time,  and  most  of  the  expenses 
have  to  be  incurred  before  the  product  is  ready 
for  sale.  How  much  one  shall  pay  per  day 
in  wages,  what  lie  can  afford  to  invest  in 
machines  or  lands  oi'  Ijuildings  or  i-aw  materials, 
how  high  interest  it  will  <lo  to  promise,  and 
how  much  capital  it  is  worth  while  to  borrow, 
all  of  these  questions  must  depend  on  what  the 
product  can  be  sold  foi'  when  the  pi'oducer  is 
ready  to  market  it;  and  it  is  only  by  basing 
his  estimates  iijioii  the  selling  ))rice  which  is  to 
be,  tliat  any  man  will  become  lentci',  borrower, 
investoi',  or  employer. 


VALUE  61 

30.  It  is  evident  that  people  produce  things 
because  there  is  a  demand  for  them  —  because 
they  will  sell  —  that  is,  will  exchange  on  de- 
sirable terras  for  other  things.  One  expects 
to  get  money  for  his  product  and  with  this 
money  to  buy  such  other  products  as  „    , 

*'  ^  People   produce 

he  needs.     Each  man  produces  be-  because  there  is 

11  -1      .  .  ,  •    r  1   a  demand. 

cause  he  has  desires  to  satisfy,  and 
produces  that  which  will  supply  the  demands  of 
others,  expecting  thereby  to  obtain  from  them 
the  wherewithal  to  supply  his  own  desires. 
Desire  or  demand  lies  back  of  all  production. 
The  ruling  market  prices  are  the  expression  of 
the  demand  as  it  exists.  Thus,  if  we  are  to 
understand  the  forces  which  lie  behind  produc- 
tive effort,  if  we  are  to  comprehend  the  way  in 
which  demand  causes  and  directs  production, 
it  is  again  evident  that  we  shall  have  to  under- 
stand the  way  in  which  prices  are  fixed;  we 
must  study  the  processes  by  which  market 
values  are  determined. 

SUCGESTIVE  QUESTIONS 

Is  the  laborer  eouuiiouly  paid  uul  ul  the  very  products 
he  has  helped  to  produce? 

Is  the  payment  of  wages  coniinonly  deferred  till  the 
sale  of  the  product,  so  tliat  the  laborer  gets  a  share  of 
the  very  money  for  wliicli  liis  i>rodiict  sells? 


52  ELEMENTARY  ECONOMICS 

III  wliat  sense  is  the  value  of  tlie  iirodiict  tlie  source  of 
wage,  rent,  and  interest  payments'.'' 

At  the  end  of  the  ^veek's  or  month's  work  has  the  em- 
ployer received  his  equivalent  for  the  wages  paid,  even 
though  the  product  is  still  in  the  warehouse? 

Jn  what  sense  is  the  employer  a  daily  purchaser  from 
his  employee  ? 

Trace  the  parallel  between  the  relation  of  farmer  to 
egg-merchant,  and  of  wage-earner  to  employer. 

Is  the  farmer  paid  out  of  the  value  of  his  product? 
In  what  sense? 

Does  any  man  live  out  of  the  value  of  his  product? 
In  what  sense?  Is  this  as  true  of  wage-earners  as  of 
other  persons  ? 


VALUE   (continued) 

Would  any  system  of  rolitical  Economy  be  possible 
for  a  man  alone  on  a  desert  island? 

Is  there  any  sense  in  which  Crusoe  could  be  said  to 
buy  one  thing  with  another  or  to  exchange  things? 

^lention  Crusoe's  probable  wants. 

Wliicli  wciuld  be  the  more  pressing? 

What  would  he  set  himself  to  obtain  first?  Secondly? 
Thirdly? 

What  would  determine  him  to  change  from  first  to 
second  ? 

What  would  be  the  reason  for  his  working? 

Why  do  men  in  society  work  ? 

Do  we  live  to  oat  or  eat  to  live  ? 

Do  we  live  to  work  or  work  to  live? 

Why  does  water  sell  for  less  than  wine?  Iron  than 
gold?     Wool  than  silk? 

Does  a  cleik  in  a  candy  shop  eat  much  candy?    Why? 


VALUE  63 

AV'hy  bring  wuixl  or  liay  to  town?     Is  this  bringing  an 
act  of  production  ?     What  does  it  produce? 
Is  this  increase  in  vahie  intrinsic? 

31.  It  is  a  commonplace  fact  that  if  you  are 
going  to  sell  things  at  a  very  high  price,  you 
will  not  sell  many  of  them.     While  t 

•^  Lower  prices 

bananas   are    ten   cents  each,   most  mean  larger 

SSilBS 

people  purchase  in  limited  quan- 
tities. If  I  am  exceedingly  hungry  for  bana- 
nas I  may  buy  one  at  this  price.  As  the 
price  falls  my  desires  express  themselves  in 
larger  numerical  volumes.  While  my  wants 
have  not  in  truth  enlarged,  there  have  new 
conditions  arisen  in  which  banana  appetites  of 
lower  intensity  come  into  play,  as  one  may 
imagine  to  himself  the  gradual  subsidence  of  a 
lake  or  sea,  and  the  appearance  one  after  another 
of  reefs,  and  bars,  and  islands. 

It  does  not  follow,  however,  that  with  in- 
creasing plenty  and  falling  price  I  shall  enlarge 
my  consumption  without  limit.     No 

But  there  is  a 

matter  how  cheap  bananas  get,  there  limit    desires 

,  •    1.        i.         1  •   1       T  are  satiable- 

must    come    a    point    at    which    1 

shall  consume  no  more.  Apples  sometimes  rot 
upon  the  ground  or  in  the  cellar,  because  we 
have  more  than  we  want.  That  is  to  say,  use- 
ful things  may  exist  in  such  abundance  as  to 


54  ELEMENTARY  ECONOMICS 

have  no  value;  you  cannot  sell  them  or  even 
give  them  away.  Water,  for  example,  may  be 
worth  nothing  —  not  that  any  particular  amount 
of  water  has  become  less  capable  of  satisfying 
human  needs,  but  because  the  supply  of  water 
outruns  the  total  need.  Some  part  of  the  total 
stock  is  thus  absolutely  without  utility.  This 
is  simply  another  manner  of  saying  that  human 
desires  and  needs  are  not  infinite  in  any  par- 
ticular direction,  and  this  again  means  simply 
that  needs  and  desires  become  less  intense  with 
partial  satisfaction.  One  does  not  ordinarily 
care  as  much  for  a  second  glass  of  water  as  for 
the  first.  Were  this  not  true  our  work  could 
bring  us  no  great  good,  eating  would  leave  us 
always  hungry,  and  our  wealth  would  afford  us 
no  comfort  or  content. 

The  same  principle  is  illustrated  in  our  daily 
expenditures,  and  explains  how  we  come  to 
make  them  as  we  do.  No  one  applies  his  entire 
income  to  the  purchase  of  food  or  shelter. 
Food  is  the  primary  necessity,  but  clothing  is 
more  acutely  required  than  is  a  second  dinner. 
We  su])ply  our  wants  in  the  order  of  their  in- 
tensities. Wlien  one  has  purchased  himself  a 
reasonaljly  hirge  wardrobe,  the  fact  that  he 
makes  no  furtlicr  purchases  of  tliis  sort  does  not 


VALUE  65 

prove  that  he  has  no  further  desire  for  clothing, 
but  that  he  has  a  stronger  desire  for  something 
else.  He  follows  the  line  of  least  sacrifice.  So 
the  purchase  of  apples  at  ten  cents  each  would 
mean  to  you  or  me  the  lack  of  other  things 
which  we  desire  more  intensely  than  we  do 
ajjples. 

So,  again,  if  one  is  picking  and  eating  wild 
berries,  it  is  certain  that  somewhere  he  must 
tire.  The  first  berries  are  well  worth  climbing 
ledges  for.  Finally  there  comes  a  berry  equally 
large  and  juic}'  which  is  just  worth  the  bother 
of  picking.  The  next  berry  does  not  get  picked 
at  all.  Remember  for  future  purposes  that  the 
last  berry  picked  and  the  first  berry  not  picked 
are  technically  called  marginal  berries.  They 
lie  on  either  side  the  line  of  choice.  The  direc- 
tion of  least  resistance  changes  at  this  point 
from  picking  to  not  picking. 

32.  In  a  certain  fashion  all  the  phenomena 
of  exchanges  are  comprised  in  the  above  exam- 
ples.    A   castaway    upon   a   desert  „ 

■7  .  Crnsoe  could 

island  has  no  one  to  trade  Avith,  and  exchange 
yet  can  essentially  trade  one  tiling     "'^^" 
for  another,  and  manifests   in  his  own  life  a 
complete  cycle  of  economic  activities.     So  far 
as  Crusoe's  work  was  rationally  planned  he  was 


56  ELEMENTARY  ECONOMICS 

constantly  turning'  liis  efforts  to  that  undone 
thing,  the  doing  oH  wliich  was  of  leading  im- 
portance. At  a  certain  point  iishing  was  aban- 
doned for  game ;  more  fish  were  refused  in  the 
interests  of  more  game.  The  game  cost  fish  or 
the  fish  bought  game,  since  the  work  which 
would  produce  either  fish  or  game  was  applied 
to  oname  and  withdrawn  from  fish. 

The  English  economist,  Marshall,  excellently 
illustrates  this  principle  as  follows:  — 

"Tlie  primitive  liousewife,  finding  that  she  has  a 
limited  number  of  lianks  of  yarn  from  the  year's  shear- 
iiitr,  considers  all  the  domestic  wants  for  clothing,  and 
tries  to  distribute  the  yarn  between  them  in  such  a  way 
as  to  contribute  as  much  as  possible  to  the  family  well- 
being.  She  will  think  she  has  failed  if,  when  it  is  done, 
she  has  reason  to  regret  that  she  did  not  apply  more  to 
making,  say,  socks  and  less  to  vests.  That  will  mean 
that  she  has  miscalculated  the  points  at  which  to  suspend 
the  making  of  socks  and  vests  respectively ;  that  she  has 
gone  too  far  in  the  case  of  vests,  and  not  far  enough  in 
that  of  socks,  and  that,  therefore,  at  the  points  at  which 
she  actually  did  stop,  the  utility  of  yarn  turned  into  sneaks 
was  greater  than  that  of  yarn  turned  into  vests.  Hut  if, 
on  the  other  hand,  she  hit  on  the  right  point  to  stop  at, 
then  she  made  just  so  many  socks  and  vests  that  she  got 
an  equal  amount  of  good  of  the  last  l)nndle  of  yarn  that 
she  applied  to  socks,  and  the  last  she  applied  to  vests." 

?)?).  If  a  man  has  only  one  bushel  of  beans  to 
.sell  lie  may  be  able  to  find  some  one  willing  to 


VALUE  57 

pay,  if  necessary,  a  very  high  price  for  them. 
If  there  are  one  hundred  bushels  to  „     , 

To  what  point 

be  sold,  the  price  will  probably  have  does  large  sup- 
to  be  lower,  in  order  that  purchasers 
may  be  found  for  all.  Large  supj^lies  of  product 
must  be  marketed  at  low  prices,  else  some  share 
cannot  be  marketed  at  all.  In  fact,  for  the 
entire  supply  the  price  will  fall  as  low  as  the 
price  at  which  any  share  must  be  sold. 

It  is  not  always  easy  to  see  how  this  works 
out.  At  best  it  can  be  illustrated  only  by 
taking  artificially  simple  and,  in  some  measure, 
unusual  conditions.  We  have,  for  example,  to 
assume  perfect  competition  —  a  condition  which 
rarely  exists  —  and  a  degree  of  care  and  accu- 
racy on  the  part  of  purchasers  which  is  not 
always  found.  But  the  general  reasonings  of 
the  illustration  hold,  and  greatly  help  to  ai; 
understanding  of  demand  and  supply  as  thev 
work  in  the  mass  in  actual  markets. 

Suppose  you  have  one  hundred  bushels 
of  beans.  One  man  desires  beans  sufficiently 
to  be  willing  to  pay  a  dollar  for  one  bushel. 
If  he  were  going  to  buy  a  second  bushel,  he 
would  pay,  we  will  say,  only  99  cents  therefor, 
98  for  a  third  bushel,  and  so  on.  If  you  are 
a  sharp  trader,  you  may  make  him  think  that 


58  ELEMENTARY  ECONOMICS 

you  have  only  one  bushel,  and  sell  him  that  at 
§1.00.  Then  if  you  can  convince  him  that 
you  have  only  one  bushel  more,  you  may  get 
99  for  this,  and  so  on.  But  evidently  if  you 
offered  to  sell  him  three  bushels  at  $1.00  each, 
he  would  not  take  them.  That  third  bushel  he 
cares  for  only  to  the  extent  of  98  cents.  If  you 
offered  to  sell  him  as  many  bushels  as  he  wanted 
at  90  cents  a  bushel,  he  would  take  just  eleven 
])ushels  [1  (100)  2  (99)  3  (98)  4  (97)  5  (96) 
6  (95)  7  (94)  8  (93)  9  (92)  10  (91)  11  (90)]. 
But  he  would  not  pay  95  per  bushel  for  the 
whole  eleven  ;  he  would  rather  go  without  five 
of  them  —  unless,  indeed,  he  had  to  pay  95  per 
bushel  for  the  whole  eleven  in  order  to  get 
any  (which,  in  fact,  is  often  the  actual  case). 
If  the  price  is  really  a  per  bushel  price  for  as 
many  as  he  wants,  he  will  buy  such  a  quantity 
as  to  leave  no  Ijushel  costing  him  more  than  he 
cares  for  it.  Make  the  price  80  cents  per 
Ijushel,  and  he  will  take  twenty-one  bushels ; 
nor  will  he  pay  a  higher  rate  per  bushel,  if  he 
has  any  choice  in  dividing  the  quantity  —  if  he 
can  throw  out  any. 

34.  And  likewise  if  one  hundred  bushels  are 
offered,  not  to  a  single  purchaser  but  upon  the 
general  market,  the  price  will  fall  to  one  cent 


VALUE  59 

each,  if,  in  order  to  sell  all,  one  bushel  must  be 
sold  to  some  one  who  would  rather  ,j,^^j^  jg  ^  j^^^. 
go  without  tlian  pay  more  than  one  ^®^  P™^- 
cent  for  it.  True,  if  there  were  only  one  seller, 
he  might  try  to  trade  with  the  purchasers  sepa- 
rately, charging  one  a  dollar,  another  99  cents, 
a  third  98,  etc.  Still,  if  one  purchaser  knew 
that  others  were  buying  at  a  lower  price,  he 
would  know  that  he  himself  could  obtain  the 
lower  price  by  holding  out.  There  cannot  be 
several  prices  where  buyers  and  sellers  all 
know,  in  a  general  way,  what  is  going  on,  — 
where  there  is  wliat  is  called  by  economists  a 
perfect  market. 

This  is  easier  to  see  in  the  ordinary  case  of 
a  large  number  of  sellers  as  well  as  of  buyers, 
as,  for  example,  where  there  are  a  hundred  dif- 
ferent offerers  of  beans,  each  with  a  bushel  for 
sale,  the  buyers  remaining  as  before.  The 
prices  must  be  fixed  at  one  cent  per  bushel,  else 
some  one  willing  to  sell  as  low  as  one  cent  will 
not  be  able  to  make  a  sale,  and  will  be  crying 
his  beans  about  at  this  price  where  other  people 
are  trying  to  sell  at  twice  or  half-a-dozen  times 
as  much.  The  price  would  thereby  necessarily 
be  brought  to  his  mark. 

Undoubtedly  in  the  case  of  one  producer  or 


60  ELEMENT ABY  ECONOMICS 

one  merchant  or  a  combination  in  control  of  the 

The  market         ^"^\'^    '^PP^^'     '^    '^""^^'^     ^^     ^^^^^ 

price  is  the  mar-  profitable  to  clcstroy  or  keep  back 
^  ^  '  some  part  of  the  supply  rather  than 
to  accept  a  price  low  enough  to  market  it  all. 
Cases  of  this  sort  are  indeed  becoming  familiar 
in  connection  with  trusts,  monopolies,  and 
combinations.  But  where,  as  is  ordinarily  the 
case,  there  are  competing  buyers  and  sellers, 
it  can  rarely  be  of  advantage  to  any  one  seller 
to  withdraw  or  destroy  his  share,  or  any  part  of 
it,  in  order  to  hold  up  the  market  price  for  all 
sellers.  The  price  therefore  falls  to  the  level 
of  the  weakest,  or,  as  it  is  called  by  many 
economists,  the  final  or  marginal  demand. 

35.    We  must  now  allow  for   differences  in 
the  prices  which  the  sellers  will  consent  to  take. 

The  process  of  ^^'^  whole  proccss  of  adjustment 
adjustment.        jj^r^y    ]^q     illustrated     as     follows : 

.Sup[)ose  there  are  offerers  of  hats  disposed  to 
sell,  if  necessary,  at  prices  ranging  at  unit  inter- 
vals from  120  to  101  inclusive,  what  Avill  the 
price  be  ?  One  might  guess  110.  But  this 
must  depend  on  the  kind  of  people  who  Avant  to 
buy.  If  there  are  full  twenty  of  them  willing 
to  pay  120  ratlier  than  not  purchase,  the  price 
may  stand  at  120  for  all.     If  there  are  not  over 


VALUE  Gl 

nineteen  of  tliis  disposition  there  must  be  one 
luit  unsold  at  120.  The  price  will  therefore 
have  to  be  lower.  But  with  lower  prices  fewer 
hat-owners  will  sell.  This  is  merely  to  say 
that  high  prices  bring  more  goods  and  fewer 
buyers.  Now,  if  we  assume  that  the  buyers' 
desires  range  from  111  to  130  inclusive,  where 
will  the  price  be  fixed  ?  It  will  not  do  to  take 
averages.  If  the  price  were  130,  only  one  man 
would  buy  and  all  hat-owners  would  be  eager 
to  sell.  At  125  six  men  would  be  disposed 
to  buy  and  twenty  to  sell ;  at  118  two  hat- 
owners  would  refuse  to  sell,  eighteen  still  con- 
senting. But  at  118  only  thirteen  men  will 
buy.  The  j^rice  must  in  fact  fall  nearly  to  115, 
where  fifteen  men  will  sell.  Yet  sixteen  w^ould 
buy  at  this  figure.  At  116,  on  the  other  hand, 
sixteen  would  sell  and  only  fifteen  buy.  The 
price  must  then  be  somewhere  between  115  and 
116,  and  the  number  of  hats  sold  fifteen. 

36.  This  case  is  typical  of  all  market  adjust- 
ments, except  where  there  are  combinations  or 
some  other  sort  of  imperfect  compe- 

.   .  -  ^      .  ^  The  margins  • 

tition.     Notice  now  that  at  the  point 
of  equilibrium  between  demand  and  supply  — 
the  price  point  —  there  are  sellers  upon  the  point 
of  refusing  to  sell  witli  any  fall  in  price,  and 


b2  ELEMENTARY  ECONOMICS 

other  liolders  on  tlie  point  of  consenting  to  sell 
witli  any  rise  in  price.  These  men  are  called  the 
marginal  seller  and  the  marginal  excluded  seller. 
Likewise  there  is  a  buyer  on  the  point  of  with- 
drawal if  price  goes  liigher,  and  a  possible  buyer 
who  will  appear  if  price  goes  lower  —  the  mar- 
ginal buyer  and  the  marginal  excluded  buyer. 

It  is  evident  from  tlie  above  illustration  that 
many  sellers  receive  a  price  higher  than  that 
necessary  to  induce  them  to  sell  ;  while  at  the 
same  time  many  buyers  make  their  purchases 
at  a  price  lower  than  that  which  they  would 
pay  if  necessary.  Thus  in  a  certain  sense 
buyers  as  Avell  as  seller's  make  profits  on  the 
market.  These  profits  or  differentials  are  (by 
many  economic  Avi-iters)  termed  respectively 
buyers'  and  sellers"  quasi-rents.  The  terms 
are  helpful.  Fix  them  and  their  meanings 
thoroughl}'   ill   iiiiiid. 

'I'lii'  (•(iiiiiiKKJity  sold  to  the  marginal  buyer 
or  sold  Ity  the  marginal  seller  may  be  called 
a  marginal  coiiiinoility.^ 

1  While  the  student  is  requiieil  to  make  himself  thoroughly 
familiar  witli  tliis  doctrine  of  margins,  and  witli  tlie  dii'ferential 
quantities  called  quasi-rents,  he  is  at  the  same  time  warned  that 
both  the  doctrines  and  the  terms  are  of  comparatively  recent 
appearance  in  economics,  and  are  not  universally  accei)ted 
among  ecunoniists.  In  the  ojiinion  of  IIk;  author,  liDwever,  tliis 
doctrine  of  margins  is  the  very  heart  of  e(M>nomic  liieory. 


VALUE  63 

37.  A  few  other  points  require  attention. 
We  have  treated  the  liats  as  sokl  for  money. 
We  might  as  well  have  taken  the  value  is  anas- 
example  of  cattle  sold  for  wheat,  or  pect  of  sacrifice. 
sheep  for  cows.  l»ut  sheep  and  cows  do  not 
divide  readily  in  trading,  and  these  cases  would 
therefore  be  awkward  to  handle.  Hut  ask  your- 
self why  the  marginal  buyer  refuses  to  pay  a 
higher  price.  It  is  not  that  because  of  a  higher 
price  he  would  no  longer  desire  the  article  in 
question,  but  that  at  this  price  he  would  rather 
buy  something  else  ;  in  other  words,  he  would 
go  without  something  that  he  wanted  more;  he 
would  sacrifice  more  than  he  obtained.  Things 
are  not  commonly  to  be  had  for  nothing  in  this 
world.  Whatever  has  what  we  call  market 
value  is  to  be  had  only  on  terms  of  sacrifice ; 
something  has  to  be  given  for  it,  or  done  for  it, 
in  order  to  get  it.  Where  so  much  is  required 
as  to  overweigh  in  importance  the  thing  to  be 
got,  we  refuse  to  make  the  sacrifice  required. 
Thus  we  see  that  in  all  questions  of  value  things 
have  to  be  compared  with  other  things.  To 
take  one,  no  matter  which,  is  to  refuse  another; 
to  enjoy  one  thing  of  value  is  to  sacrifice  another 
for  it. 

38.  If    useful    things    were    to    be    had    in 


U4  EL  KM  E\  TA  li  Y  ECONOMICS 

unlimited  quantities  and  witliout  effort,  they 
A  certain  antag-  would  l)eai'  DO  value.  Value  comes 
valM  andT^^^  about  ouly  where  there  is  resistance 
utility.  to  be  overcome,  —  where  there  is  a 

disproportion  between  desires  and  the  means  of 
satisfaction.  Value,  then,  is  more  nearly  the 
measure  of  the  scarcity  of  useful  things  than 
of  their  usefulness.  It  is  not  the  measure  of 
utility,  but  the  measure  of  the  sacrifice  involved 
in  obtaining  utility.  IVie  value  of  any  particu- 
lar thing  is  the  measure  of  its  power  of  com- 
manding sacrifice  in  other  things.  And  note 
carefully  that  even  for  marginal  buyers  or 
sellers,  where  the  slightest  unfavorable  change 
in  price  would  prevent  the  trade,  value  does 
not  stand  as  the  measure  of  the  absolute  utility 
of  the  commodity  in  question,  but  only  of  the 
utility  of  it  relatively  to  the  utility  of  that 
which  it  is  necessary  to  forego. 

It  is  evident,  for  example,  that  the  poor  man 
goes  without  what  the  rich  man  purchases,  not 
Value  is  mar-     bccause   the   poor    man    needs   the 

ftiiiJyr-mIr-  ^^^^"^  ^^^^^  ^''^^  becausc  he  needs 
ginai  sacrifice,    something  else  more.     A  pound  of 

meat  may  be  many  times  more  useful    to  the 

poor  man  than  to  the  rich,  Ijut  to  the  poor  man 

to  have  the  meat  means  to  lack  lor  bread,  while 


VALUE  65 

the  choice  for  tlie  rich  man  lies  between  bread 
and  a  cigar  or  a  tlieatre  ticket.  So,  again,  one 
may  forego  tlie  bread  to-day  whicli  lie  would 
have  purchased  a  week  or  a  year  ago,  though 
no  less  hungry  to-day.  The  strength  of  the 
desire  for  other  things  is  a  necessary  element 
in  the  decision.  The  marginal  case  is,  then,  a 
case  of  marginal  relative  utility  —  that  is,  of 
marginal  sacrifice.  A  given  case  is  marginal 
simply  because  the  utility  gained  and  the 
utility  sacrificed  are  equal. 

39.  When  one  wants  a  barrel  of  flour,  it  may 
be  possible  to  obtain  it  at  the  store  by  working 
a  few  days  for   tlie    proprietor,   or 

Production  is  a 

perhaps  by  exchanging  garden  truck  purchase  from 
or  eggs  for  the  flour,  or  by  paying  ^^*"®' 
the  price  of  the  flour  in  money.  But  in  this 
last  case  that  which  is  really  sacrificed  for  the 
flour  is  not  the  money  but  the  things  which  the 
money  will  buy.  Again,  it  would  be  possible, 
that  instead  of  buying  the  flour  one  set  to 
work  to  produce  it.  In  this  last  case,  instead 
of  paying  money  or  truck  for  the  flour  the 
payment  is  made  with  labor  or  effort.  All 
cases  of  production  really  trace  back  finally  to 
exactly  this  case.  If  one  does  not  produce  the 
flour  directly,  he  produces  the  garden  truck  or 


66  ELEMENTARY  ECONOMICS 

the  eggs,  or  he  earns  in  some  way,  through 
labor  or  service,  the  wealth  or  money  with 
which  to  make  the  purchase.  Thus  production 
may  be  helpfully  and  rightly  viewed  as  a  pur- 
chase of  utility  from  nature  at  the  price  of 
effort. 

But  it  is  none  the  less  true  in  any  case,  that 

each  thing  of  value  costs  something  else,  since 

the  labor  which  produced  one  thing 

but  is  none  the        .    ,       ,  i  •     i  j.     j.r 

less  an  exchange  nught  have  been  applied  to  tne  pro- 
of things,  duction  of  another.  And  so  we  re- 
turn asfain  to  the  fact  that  all  value  is  attended 
by  sacrifice,  and  that  were  there  no  sacrifice 
there  would  be  no  value. 

QUESTIONS 

Find  the  market  price  in  the  following  problems : 

Boys  desire  base  balls  according  to  the  following 
scale :'  100,  95,  94,  87,  82,  78,  (JO,  55,  53,  48,  47,  45,  39,  36, 
31,  26.  With  only  6  base  balls  in  the  market,  what  will 
be  the  price?  With  9?  With  12?  With  15?  Let  the 
above  scale  represent  the  falling  intensity  of  one  boy's 
disposifion  to  bny  base  balls;  will  this  affect  tlie  results? 

Sellers'  minimum  prices  are  a.s  follows:  36,  35,  33,  31, 
BOJ,  29 J,  28;  buyers'  maximum  payments  as  follows:  40, 
38,  36,  34,  33,  32.     Find  price. 

Sellers'  19,  IS.  17,  14,  12,  7,  6,  .5,  4,  3;  buyers'  1,  2,  3,  4, 
5,  6,  7,  8,  9.     Find  price. 


CHAPTER   VI 

COST  OF  PRODUCTION 

Suppose  yourself  to  have  a  pear  and  a  peach;  some 
one  tries  to  take  them  from  you.  You  can  retain  one, 
the  peach,  by  letting  the  other  go.  What  has  the  peach 
cost  you  ? 

If  one  offers  you  a  ride  or  an  evening  at  the  theatre, 
and  you  choose  the  ride,  what  does  the  ride  cost  you  ? 

If  your  work  will  produce  for  you  two  bushels  of  corn 
or  one  bushel  of  wheat,  and  you  raise  corn,  what  is  the 
cost  of  production  of  the  corn  per  bushel  ? 

If  with  a  dollar  you  have  decided  to  buy  either  a 
book  or  a  pocket  knife,  and  finally  buy  the  book,  what 
does  the  book  cost  you  ? 

Why  do  men  work? 

When  they  stop  does  this  indicate  that  they  want  no 
more  product  ? 

If  you  were  picking  berries  to  eat,  when  and  why 
would  you  stop  picking? 

If  you  were  given  one  hundred  dollars  to  spend  would 
you  probably  buy  one  thing  or  several? 

"Would  your  purchase  of  a  second  or  third  variety  of 
goods  show  that  you  did  not  care  at  all  for  more  of  the 
first?     Why  not  limit  your  purchases  to  one  thing? 

40.    You    have    learned  in    your    study   of 

Physics  that  force  always  follows  the  line  of 

least    resistance.      Water  seeking    an    outlet 

67 


68  ELEMENTARY  ECONOMICS 

breaks  through  the  weakest  point  in  the  barrier ; 

the  chain  gives  way  at  its  weakest 
All  men  act  on    , .    ,  ,  ,  •         .        i 

lines  of  least     Imk  :  when  two  opposing  tendencies 

resistance,  ^^^^^^  ^j^^  weaker  is  overbalanced. 
The  line  of  least  resistance  includes  as  well  the 
line  of  the  greatest  pull ;  the  stronger  attraction 
prevails.  So  men  in  choosing  between  different 
pains  or  discomforts,  refuse  the  greater,  sub- 
mitting to  the  less  ;  in  choosing  between  pleas- 
ures they  select  the  greater,  following  always 
the  line  of  least  motive  resistance.  That  is  to 
say,  the  line  of  human  action  is  the  line  of  least 
sacrifice.  Accurately  speaking,  one  cannot  act 
contrary  to  his  choice.  Men  always  do  the 
thing  which  they  prefer.  If  the  thing  done 
were  not  the  preferred  thing,  another  thing 
would  be  done.  The  choice  may  be  between 
several  evils ;  in  that  case  the  choice  of  the  least 
is  none  the  less  a  choice. 

Do  not,  however,  make  the  mistake  of  sup- 
posing that  men  always  act  selfishly.  One  has 
but  not  sel-  ^"^7  *^  remember  his  home  and  his 
fishly.  parents   to   know  that    this    is  not 

true.  Nor,  indeed,  is  it  always  true  in  matters 
of  business.  The  world  is  full  of  people  who 
refuse  to  do  wrong  for  gain,  as  it  is  of  men  who, 
in  business  or  outside,  do  kindnesses  for  the 


COST  OF  PRODUCTION  69 

pleasure  of  doiiif^  them.  In  determining  the 
line  of  least  sacrifice  we  have  to  take  account 
of  human  sym[)athy  and  conscience  as  well 
as  of  human  frailty.  Inside  ourselves  are 
the  strongest  forces  of  temptation  and  of  re- 
straint. 

41.  In  buying  and  selling  commodities  men 
likewise  exchange  the  less  desirable  for  the 
more  desirable  commodities.  When  ^niich  sacrifice 
one  lias  money  to  expend  hv  buys  measures  value? 
the  things  he  wants  most.  We  commonly  say 
that  the  hat  or  the  suit  of  clothes  costs  this 
or  that  number  of  dollars.  This  however  is 
not  a  full  or  an  accurate  statement  of  the 
case.  The  money  is  not  valuable  merel}'  for 
keeping.  Had  you  not  bought  the  hat  or  the 
clothes  you  wonld  have  bought  something  else. 
And  now  note  that  tlie  thing,  which  you  de- 
sire next  to  the  thing  which  you  actually  buy, 
shows  what  the  thing  3'ou  buy  really  costs 
you. 

Thus  if  you  would  pay  a  dollar  for  a 
hat  you  would  with  still  greater  readiness 
pay  any  smaller  sum.  Your  greatest  sacrifice 
shows  most  nearly  liow  highly  you  prize  the 
hat. 

If  you  have  the  opportunity  of  going  to  the 


70  ELEMENTAUT  ECONOMICS 

theatre  or  to  a  picnic  or  foi-  a  walk,  and  prefer 
theatre  to  picnic  and  picnic  to  walk,  your  love 
of  the  theatre  is  better  measured  by  your  pic- 
nicking than  by  3'our  walking  inclination  —  by 
the  most  you  will  sacrifice  rather  than  by  the 
least. 

If  for  a  bicycle  you  would  give  your  gun  or 
your  Irish  setter  or  even  your  pony,  your  pony 
best  indicates  the  degree  in  which  you  desire  a 
bicycle. 

If  with  your  next  month's  wages  you  decide 
to  buy  either  a  new  coat  or  a  tennis  set,  not 
your  month's  work  but  the  coat  measures  what 
the  tennis  set  costs  yoti. 

It  has  l)een  said  that  greater  love  hath  no 
man  than  this,  that  he  should  lay  down  his  life 
for  his  friend  ;  if  so,  not  the  smaller  services 
of  kindness,  but  the  very  love  of  life  itself 
measures  man's  highest  devotion  to  his  fellow. 

42.  In  attempting  to  estimate  the  cost  of 
production  of  commodities,  we  commonly  say 
that  such  or  such  a  tbing  cost  so  many  days' 
w(jrk,  or  so  iinich  outlay  in  wages,  rent,  and 
interest.  But  just  as  the  numey  paid  out  in 
wages,  rent,  or  interest  is  uniiujujrtant,  other- 
wise than  for  what  it  would  obtnin  if  expended 
differently,  so  the  labor  applied  to  the  produc- 


COST  OF  PRODUCTION  71 

lion  of  a  particular  commodity  is  unimportant 
otherwise  than  as  bearing  upon  what  it  might 
elsewhere  have  been  made   to  pro-  „  ^      .      , 

'■  Not  rent  and 

duce.     Labor  has   no  value  in  and  interest,  but 

c    -4.     If         \\T  n  goods,  the  real 

01  itseli.  VVages  are  really  never  cost  of  produc- 
paid  for  labor.  The  value  of  a  *^°°' 
saw  or  plane  depends  upon  the  heljj  it  may 
afford  to  the  mechanic.  What  the  field  is  worth 
depends  u])()n  what  it  will  produce — the  cow 
upon  the  milk  it  A\ill  give  or  the  meat  it  will 
furnish.  So  the  value  of  labor  depends  upon 
what  can  be  got  out  of  it.  Nobody  wants  labor 
as  sucli.  Mere  motion,  simple  activity,  is  void 
of  value.  Only  for  product  and  in  proportion 
to  2)roduct  can  labor  command  a  price.  Ulti- 
mately the  employer  purchases  not  labor,  but 
the  goods  which  labor  produces. 

]Man  [)r()(luees  thai  lie  lua}'  consume  ;  labor  is 
a  process  of  value  creation.  Pie  labors  because 
this  is  the  condition  on  which  his  Which  is  first 

P  .    ■  1      1  1        cause,  value  or 

enjoyment  oi  certain  goods  depends,  labor? 
Labor  is  not  the  explanation  of  the  utility  — 
the  utility  is  the  purpose  of  the  labor.  So 
utility  is  the  cause  of  value — the  scarcity  which 
compels  effort  being  a  mere  condition.  Product 
is  the  return  upon  effort.  Labor  has  value  merely 
in  the  sense  that  the  value  of  the  product  may 


72  ELEMENTARY  ECONOMICS 

be  ascribed  to  the  labor  which  will  produce  the 
product.  It  is  therefore  not  logical  to  measure 
the  value  of  the  product  by  the  value  of  the 
lal)()r;  the  labor  is  measured  in  value  by  the 
prmluct. 

48.    The  value  of  a  thinijf  lias  been  shown  to 

be  fixed  by  the   sacrilice  wliich  it  commands 

in  exchange  for  other  commodities. 

Cost  of  '^  .         . 

production  Cost  of  production  is  to  be  stated  in 

similar  terms.  As  to  any  particular 
article,  cost  of  production  is  the  sacrifice  of  other 
possible  values  producible  by  the  same  produc- 
tive energies. 

Each  man  seeks  for  himself  that  line  of  pro- 
duction which  seems  to  him  to  offer  the  most 

favorable  opportunities.     Some  men 

Whose  cost  IS 

equal  to  market  could  uot,  or  would  not,  uuless  at 
a  very  great  cliange  in  the  selling 
price  of  their  products,  change  tlieir  direction 
of  activity.  Otiiers,  on  the  other  liand,  are  near 
to  the  margin  of  change  to  another  line  of  pro- 
duction. The  market  price  consideraljly  more 
than  remunerates  some  producers ;  it  barely 
remunerates  others, — that  is  to  say,  barely  in- 
duces tliera  to  continue  in  tlieir  ))resent  line  of 
production.  A  producer  is  often  not  merely  a 
laborer,  or  an  employer  of  labor;  more  often, 


COST  OF  PRODUCTION  73 

indued  almost  of  necessity,  he  is  an  employer 
of  capital  and  land  as  well.  If  by  a  fall  in 
market  prices  the  returns  become  inadequate, 
many  producers  tend  to  drop  out  of  this  line 
of  production,  and  to  seek  other  lines.  As  the 
price  falls,  the  producers  nearest  to  changing 
their  employment  fall  out  earliest.  These  men 
are  called  marginal  producers.  If  wages  fall  in 
any  particular  employment  wage-earners  like- 
wise tend  to  desert  this  line  of  employment. 
(Jn  the  other  hand,  when  profits  or  wages  in 
any  employment  tend  to  increase,  increased 
production  tends  to  follow.  Fewer  goods  re- 
sult from  a  fall  in  price,  more  goods  from  a 
rise.  Thus  unusual  advantages  or  unusual  dis- 
advantages in  production  tend  to  be  cancelled 
by  resulting  changes  in  the  supply  of  goods. 
It  thus  comes  about  that  the  market  price  of 
each  commodity  is  on  the  average  high  enough 
to  induce  a  supply  which  is  ordinarily  sufficient 
for  the  market,  and  that  this  average  price 
is  the  same  as  the  marginal  cost  (sacrifice)  of 
j)r(Mluction.  In  this  sense  it  is  true,  and  in 
this  sense  only,  that  marginal  cost  of  produc- 
tion fixes  market  price.  The  relative  strength 
of  the  demand  for  other  products  fixes  the 
value  of  any  particular  commodity,  and  fixes 


74  ELEMENTARY  ECONOMICS 

as  well  the  amount  of  it  which  will  be  produced. 
For  example,  if  a  given  amount  of  wheat  will 
exchange  for  a  hat,  but  can  be  produced  with 
less  labor  than  the  hat,  wheat  production'  will 
increase  or  hat  production  decrease,  till  this 
advantage  in  selling  is  cancelled  by  a  fall  in 
the  price  of  wheat  relative  to  hats. 

To  make  this  clearer  let  us  ask  why  a  given 
producer  withdraws  from  production  when  the 
The  cause  of  price  falls.  From  his  point  of  view 
lioT  lUsT  '^'  i«  sufficient  to  say  that  further 
relative  matter,  production  is  a  matter  of  no  profit 
or  of  absolute  loss  ;  but  the  ultimate  answer  is 
that  his  productive  powers  can  be  elsewhere 
employed  to  better  advantage.  If,  working 
elsewhere,  he  can  produce  products  of  more 
value,  he  changes  his  occupation,  not  because 
cost  of  })r(>(luciioii  is  too  high  absolutely,  but 
too  liigli  relatively.  To  continue  production 
ill  IIk;  old  direction  would  be  to  sacrifice  a 
greater  value  possible  in  another  direction. 
The  dilficulty  is  not  that  cost  of  production 
is  too  Iiigh  in  the  first  employment,  but  that 
for  an  equal  effort  a  higher  remuneration  is 
obtainable  elsewhere. 

44.  'J'he  student  should  now  be  prepared  to 
see  that  ivowx  every  change  of  a  producer  from 


COST  OF  PRODUfTION  75 

one  line  of  employment  to  another  two  results 
follow.  The  producer  makes  the 
change  in  view  of  a  change  in  mar- 
ket values,  but  the  change  in  employment  tends 
to  cause  a  rise  in  the  value  of  the  commodity 
which  he  abandons,  and  a  fall  in  the  value  of 
the  commodity  which  he  sets  himself  to  pro- 
duce. In  the  beginning  his  change  was  the 
result  of  market  conditions ;  but  that  which 
is  primaril}'  an  effect  often  becomes  in  turn 
a  cause,  and  works  to  counteract  the  original 
cause.  This  indeed  is  almost  always  the  case 
in  economic  questions. 

The  physical  sciences  excellently  illustrate 
social  forces  in  this  respect.  Water  flowing 
from  one  receptacle  to  another  sets  , 

/  Interaction  of 

its  own  limit  to  the  process.  Freez-  cause  and 
ing  brings  an  end  to  the  solidifying 
process  through  a  self-manufactured  protection 
against  the  cold.  The  brisk  fire  finally  smothers 
itself  in  ashes.  A  spring  hard  pushed  increases 
its  resistance  to  a  new  point  of  equilibrium. 
Chemical  reactions  themselves  bring  about  new 
equations.  Likewise  in  human  affairs:  wars 
bring  the  peace  of  exhaustion  ;  satisfaction  of 
desire  results  in  satiation  ;  continued  labor 
makes  ever  shriller  the  cry  for  rest. 


76  ELEMEyTARY  ECONOMICS 

^larket  values  indicate  a  shifting  point  of 
adjustment  between  the  opposing  forces  of 
demand  and  suppl}^  both,  however,  taking 
their  origin  in  the  primary  fact  of  demand. 


SUGGESTIVE  QUESTIONS 

What  ^\-as  the  utility  to  Crusoe  of  a  day's  labor  ? 

Would  tlie  utility  have  beea  somethiug  else  had  his 
island  been  another  island? 

Do  you  think  the  value  of  a  man's  working  powers 
depends  upon  what  it  has  cost  to  rear  him? 

Wiiy  don't  you  study  IIel)rew?  Do  you  think  it  alto- 
gether useless  ? 

What  do  you  expect  to  do  for  a  living?  Why  not 
something  else? 

What  is  the  reason  that  all  farmers  in  your  neighbor- 
hood do  not  raise  rye  exclusively? 

Wiiy  not  produce  silk  in  the  United  States? 

Does  the  marginal  producer's  or  seller's  sacrifice  fix 
price?  Or  is  it  the  marginal  purchaser's  sacrifice?  Or 
is  it  the  equation  of  demand  and  supply?  Which  is  the 
jirimary  force? 

AVhy  does  the  nearest  excluded  buyer  not  buy  ?  Near- 
est excluded  seller  not  sell? 

Why  do  some  producers  stop  producing  when  price 
falls  ? 

What  do  they  do  then  ? 

Why  do  others  continue  to  produce? 

Do  producers  expect  to  determine  price  by  their  sac- 
rifice? 

Would  it  be  well  for  most  of  them  if  they  could?    Or 


COST  OF  PRODUCTION  77 

do   they  adapt   jnoductioii    to   price?     IIow  does   your 
answer  apjily  to  inoiiopoly  ]iroducers? 

Are  wages  lixed  by  demand  and  supply,  or  by  produc- 
tiveness of  labor,  or  by  bothV  How  may  you  reconcile 
affirmative  answers? 


CHAPTER   VII 

RENT   OF   LAND 

If  you  were  renting  land  for  farming  would  you  pay 
more  for  some  lauds  lliau  you  would  for  others?     Why? 

How  much  do  you  think  you  could  handle  advantage- 
ously without  hiring  men  ? 

Why  not  get  along  with  half  as  much?  One  fourth 
as  much?     Twice  as  much?     Four  times? 

From  320  acres  do  you  think  two  men  in  diversified 
farming  could  get  twice  as  much  as  one  ?  Four  twice 
as  much  as  two?  Eiglit  as  four?  Sixteen  as  eight? 
AVhere  would  this  stoji,  if  ever? 

Would  it  matter  for  this  purpose  whether  the  crop 
were  strawberries  or  wheat  ? 

Would  the  advantages  of  increase  of  numbers  ever 
cease  in  the  case  of  strawberries  ? 

Can  two  men  harvest  more  hay  or  wheat  than  one? 
Two  times  as  much  ?     Three  times  as  mucli  ? 

If  you  were  renting  land  for  building  would  you  pay 
more  for  one  town  lot  than  for  another  ?     Why  ? 

45.  The  producer,  estimating  as  best  lie  may 
the  price  which  lie  will  be  able  to  obtain  for 
The  market  lii«  iJroducts,  lias  before  him  the 
value  of  the       problem    of   how  to    produce   most 

crop  18  the  -^  '■  ^ 

primary  fact,      clieaply   the    products  in  question. 
Suppose,  Un\  examph;,  that  he  undertakes  the 

78 


RENT  OF  LAND  79 

production  of  wheat.  He  will  need  land,  capi- 
tal, and  laborers.  Hut  is  it  best  to  till  much 
land,  or  shall  he  take  less  land  and  employ 
more  lal)orers,  or  shall  he  rather  increase  the 
amount  of  machinery  and  fertilizers  used  ? 
The  selling  price  of  his  product  fixes  the  out- 
side limit  of  his  expenditures.  Out  of  this  sell- 
ing price  he  must  get  back  the  interest,  rent, 
and  wages,  and  derive  whatever  is  to  remain 
to  him  as  the  remuneration  for  his  superin- 
tendence, risk,  and  effort.  He  finds  the  rate 
of  wage  payment  practically  fixed,  for  example, 
at  $1.50  per  day.  He  will  increase  his  number 
of  men  as  long  as  he  believes  that  his  product 
will  thereby  increase  so  as  to  justify  the  larger 
outlay.  His  demand  for  labor  is  evidently 
a  demand  for  the  results  of  labor  —  for  the 
commodities  wliich  it  produces.  His  demand 
for  labor  must  then  find  its  limit  at  the  point 
where  the  wage  payments  approach  equality 
with  the  increase  in  the  value  of  the  product 
due  to  the  laborer.  We  come,  therefore,  to 
the  general  proposition  that  wages  are  at  the 
maximum  limited  by  the  value  of  the  laborer's 
own  contribution  to  the  value  of  the  prod- 
uct. We  shall  later  see  that,  through  the  op- 
portunity open  to  laborers  of  producing  upon 


80  ELEMENTARY  ECONOMICS 

their  own  account,  and  through   the   competi 
tion  of  employers  seeking  protit  iroin  the  ser- 
vices of  employees,  the  actual  wage   payment 
commonly  does  not  fall  very  far  short  of  this 
maximum. 

Our  wheat  producer  finds  also  that  capital 
is  worth  a  certain  per  cent  per  year  ;  that  is, 
he  finds  an  established  rate  of  interest.  How 
much  capital  he  shall  employ  must  depend 
upon  the  amount  of  it  which  he  can  advan- 
tageously apj)ly,  while  retaining  for  himself  a 
balance  of  profit  over  the  cost  of  production. 

46.  But  with  wages  and  interest  and  market 
prices  as  they  are  or  are  expected  to  be,  he 
Lands  differ  discovers  great  differences  in  the  de- 
greatiy.  sirability  of  different  lands.      One 

piece  but  scantily  remunerates  the  application 
of  labor  and  capital,  producing,  we  will  say, 
ten  bushels  of  wheat  to  the  acre.  Under  con- 
ditions of  cost  and  price  as  they  exist,  this 
land  is  therefore  barely  worth  changing  from 
pasture  to  tillage,  and  is  barely  worth  hiring 
at  a  rental  sufficient  to  induce  the  change. 
Lands  which,  with  the  same  expenditure  of 
capital  and  labor  will  ])roduce  more  bushels 
per  acre,  command  a  propoi'l  innately  high 
rental  —  approximately    the     value     of     these 


BENT  OF  LAND  81 

extra  buslicls.  Just  as  men  pay  different 
prices  for  different  qualities  of  machines, 
tools,  liorses,  or  pianos,  they  rent  or  purchase 
different  pieces  of  land  at  different  rental  or 
purchase  prices. 

47.  So  far  then  there  is  nothing  peculiar  or 
striking  in  land  or  rental  questions.  But  if 
we  turn  to  consider  the  effect  upon 

e  •  .  ,      .  Effect  of  in- 

rent  from  increasing  population,  or  crease  m  popu- 

from    increasing   demand    for  agri-     *^°"' 
cultural  products,  we  shall  find  that  some  im- 
portant tendencies  become  manifest,  which  are 
peculiar  to  questions  of  land  and  rent. 

These  tendencies  are  all  exi^lained  by  the 
fact  that  the  effectiveness  of  labor  in  agricult- 
ure suffers  severel}^  if  the  supply  of  land  is 
inadequate.  How  much  land  one  man  may 
advantageously  work  depends,  of  course,  upon 
what  crop  he  is  going  to  raise.  But  one  cannot 
ordinarily  raise  as  much  from  five  acres  as  from 
ten,  nor  can  one  ordinarily,  by  doubling  the 
labor  and  capital  on  his  ten  acres,  thereby 
double  the  product.  Were  it  possible  continu- 
ally to  double  product  by  doubling  the  expenses 
of  cultivation,  there  could  never  come  any  need 
of  more  cultivated  land,  no  matter  what  increase 
might  take  place  in  the  demand  for  agricultural 


82  ELEMENTARY  ECONOMICS 

product.  As  it  is,  however,  a  larger  demand 
for  product  is  met  in  part  by  cultivating  more 
land. 

Evidently,  if  population  were  sufficiently 
sparse,  only  the  best  land  would  need  to  be 
cultivated,  and  were  land  of  the  best  quality 
unlimited  in  supply,  no  rent  would  have  to  be 
paid  by  any  one,  since  if  rent  were  demanded 
the  cultivator  would  have  his  choice  of  otlier 
land  equally  good.  But  as  population  should 
increase,  lands  of  inferior  quality  or  lands  at  in- 
convenient distances  would  have  to  be  brought 
under  cultivation,  and  rent  would  then  be 
paid  for  the  land  of  better  quality.  So  when 
third-quality  land  was  brought  into  use,  the 
second-quality  land  would  command  a  rental 
and  the  first-quality  a  still  higher  rental. 

48.  Note  now  that  this  application  of  labor 
and  capital  to  poorer  and  poorer  lands  must 
There  come  a  involve  a  constant  tendency  toward 
dMdend"and  ^^^  lowering  of  wagcs  and  interest, 
higher  rents.  since  there  is  necessitated  a  con- 
stantly decreasing  product  in  proportion  to 
the  labor  and  capital  applied.  True,  there 
is  an  increase  in  product,  but  there  is  not  an 
increase  proportional  to  the  increase  in  the  num- 
ber of  claims  against  it.     liut  all  the  while  as 


RENT  OF  LAND  83 

poorer  lands  are  brought  into  cultivation  there 
results  a  larger  volume  of  rent  receipts  ;  that 
is  to  say,  an  increasing  share  of  the  product 
goes  to  the  landlords  as  payment  for  the  oppor- 
tunity to  cultivate  the  land. 

In  view  both  of  the  difficulty  and  of  the  im- 
portance of  this  principle,  further  explanation 
seenLS  desirable.  It  is  clear  that  The  results  are 
wages  must  somewhat  fall,  since  the  ^g^^arginal 
total  harvest  —  tlie  dividend  —  di-  doctrine, 
vided  by  the  number  of  cultivators,  gives  a 
lower  quotient  —  a  lower  per  capita  of  product. 
But  it  is  also  true  that  this  lower  aggregate 
product  and  lower  individual  share  of  the  quo- 
tient does  not  measure  all  the  fall.  We  have 
seen  that  to  sell  one  hundred  apples  the  price 
must  go  low  enough  to  take  the  last  one,  the 
marginal  purchaser  marking  the  price  level  for 
all  other  purchasers.  So  when  men  are  being 
hired,  no  one  of  them  will  be  paid  more  than 
would  be  lost  in  product  if  he  did  not  work. 
Thus  each  advance  of  cultivation  to  poorer 
soils  lowers  wages  all  along  the  line.  The 
laborer  can  receive  as  wages  only  what  he 
adds  to  product.  Therefore  what  is  paid  for 
labor  in  the  most  unfavorable  of  the  oppor- 
tunities   used,    limits    the    wage    payment    for 


84  ELEMENTARY  ECONOMICS 

labor  (if  similai'  ijuulity  and  effectiveness  else- 
where cin|)l()\  t'd. 

In  a  siniihir  maimer  less  and  less  productive 
opportunities  in  the  employment  of  increasing 
capital  tend  to  reduce  the  interest  paid  upon 
capital  used  in  any  employment. 

In  the  case  of  the  apples,  it  was  not  the  aver- 
age demand  but  the  marginal  demand  which 
explained  the  price  of  apples.  In  the  case 
of  land,  it  is  not  the  productiveness  of  the  best 
land  or  of  average  land,  but  of  the  poorest 
land  in  cultivation,  which  gives  the  rate  of 
payment  for  the  productive  energies  —  labor 
and  capital  —  applied  thereto.  Thus  the  very 
causes  which  serve  to  increase  rent  work  at  the 
same  time  to  lower  wages  and  interest. 

49.  This  tendency  of  agriculture  toward 
diminishing  product  relative  to  increased  labor 
and  capital  applied,  is  easy  enough  to  under- 
stand, if  we  think  of  farming  or  gardening  as 
„,    ,       ,       any  one  of  us  may  see  it  round  about 

The  law  of  "^  -^ 

diminiBhing  huu.  You  cannot  double  the  product 
of  your  garden  indefinitely  by  doub- 
ling the  care  and  fertilizers.  If  a  farmer  has 
a  farm  of  reasonable  size,  he  will  not  get  ten 
times  the  grass  or  wheat  from  it  ])y  multiply- 
ing by  ten  the   numl)er  of   hired  men.     TJiis 


RENT  OF  LAND  85 

tendency  toward  lower  retunis  in  ajTricultiire 
is  called  in  Political  Economy  tlie  law  of 
diminisliing  returns.  By  this  law  is  in  })aft 
to  be  explained  the  fact,  that  in  densely  popu- 
lated countries,  like  China  and  Japan,  wages 
are  low  and  the  standartl  of  living  depressed. 
When  average  productioji  is  small,  average 
consumption  —  that  is  to  say,  the  average 
reward  of  effort,  wages  —  must  he  correspond- 
ingly small.  Where  low  average  productive- 
ness results  from  insufficient  land,  it  comes 
about  that  the  better  lands  bear  high  rents  and 
command  high  prices ;  that  is  to  say,  a  large 
share  of  the  product  goes  to  landowners  in  the 
form  of  rent  or  of  interest  on  landed  invest- 
ments. Bad  environment  brings  small  pros- 
perity. The  newer  countries,  like  America 
and  Australia,  have  the  advantage  in  this  re- 
spect over  old  and  thickly  populated  lands,  like 
tliose  of  Europe.  Where  the  land  is  adequate, 
the  rents  are  low. 

QUESTIONS 

Compare  the  Chinese  and  the  English  in  point  of 
{(i)  intelligence,  (/>)  strength,  (c)  activity,  (^/)  progres- 
siveuess,  (e)  scientific  knowledge,  ( /')  inveutiveiiess, 
(<7)  fi'eedom,  (Ji)  hopefulness,  (/)  ambition. 


86 


ELEMEN  TA  R  Y  ECOA'OMICS 


Compare  the  respective  environments  in  (a)  climate, 
(h)  mineral  resources,  (c)  fertility,  ((/)  adequate  supply 
of  land. 

URBAN   LANDS 

60.  Accessibility  to  market  is  also  a  matter 
of  very  f^reat  importance  in  fixing  the  value  of 

Travel  or  pay  l'""^'  ^^^'^'  example,  you  might  be 
money.  willing  to  pay  a  good  sum  for  the 

privilege  of  drawing  water  from  a  spring  near 
by  your  own  home,  rather  than  obtain  the  water 
gratis  from  a  distant  spring.  In  the  case  of 
the  second  spring  your  walk  is  a  sort  of  rent 
—  you  pay  in  effort  instead  of  in  money. 

The  matter  of  location  l)ecomes  of  over- 
shadowing importance  in  the  case  of  city  rents, 
where  convenience,  health,  Ijeauty,  and  social 
advantages  are  tlie  leading  subjects  of  interest. 
As  with  agricultural  lands,  so  with  urban  lands 
there  are  locations  of  vanishing  value  which 
are  nearly  marginal  and  therefore  almost  non- 
rent-paying.  The  better  locations  command 
rent  in  the  measure  that  tliey  are  more  de- 
sirable than  the  marginal  locations.  Rent  is 
thereff^re  the  measure  of  tin;  difference  in  de- 
sirability between  bettci-  limds  and  marginal 
hinds.  'J'he  word  differential  is  a  common 
and    useful    term    in    descriljiiig   any    form   of 


URBAN  LANDS  87 

rent  —  whether  hmd  rent  or  the  different  quasi- 
rents. 

SUGGESTIVE  QUESTIONS 

Assume  an  island   witli   lands  van^int^  in   productive 

quality  from  L'.S  to  L'd  as  shown  by  the  diagram.     Consider 

that  with  each  100  of  population  a 

new  tract  has  to  be  cultivated  and     -'0  20  20  20  20  20 

that  the  diagram  covers  all  the  land     21  21  21  21  21  21 

to    which    the    society   has    access,     qo  oo  oo  90  99  2*^ 

What  will  be  the  sum  total  of  rent     ^„  ^,  ^,  „, 

93  94  94  94  95  95 

with  a  population  of  900?     1,300?     "     "  "     " 

1,800?    2,:300?    2,500?    2,900?  25  26  26  26  26  26 

Assume  also  that  the  fertile  lands  27  27  27  28  28  28 
are  nearer  the  market,  and  that  each 

grade  of  more  distant  land  must  pay  one  bushel  as  trans- 
portation charge  to  reach  the  market.  How  are  your 
foregoing  answers  modified  ? 

Assume  again  that  it  is  the  poorer  lands  which  are 
nearest  the  market,  the  better  lands  being  subject  to  trans- 
portation charges.     Revise  your  answers  to  fit  this  case. 

What  effect,  other  things  being  equal,  does  population 
have  on  aggregate  rents? 

Suppose  the  State  owned  the  land,  should  we  pay  any 
rent? 

Do  we  now  in  any  way  pay  what  amounts  to  a  land 
rent  to  the  State  ? 

What  does  a  perpetual  lease  without  rent  amount  to? 

If  you  were  a  tenant,  and  the  landlord  remitted  your 
rent,  would  you  have  to,  or  would  you,  sell  your  products 
at  lower  prices? 

Suppose  all  land  rent  were  released ;  how  would  this 
affect  prices? 

AVliat  effect  would  the  general  forgiving  of  rents  have 


88  ELEMENTARY  ECONOMICS 

on  the  ileinand  for  products?  On  the  supply  of  products! 
On  amount  of  land  cultivated?     On  prices? 

What  etfect  from  a  percentage  tax  on  rents? 

Would  it  force  any  land  out  of  cultivation  ? 

If  tenants  were  rcMjuired  to  pay  more  rent  what  would 
tiiey  do?  If  consumers  were  charged  higher  prices  what 
would  they  do  ? 

On  wluim  then  would  the  tax  fall? 

If  a  large  body  of  fertile  land  —  a  new  continent  for 
exam]ile  —  were  discovered,  what  effect  w^ould  it  have  on 
rents  in  Europe? 

Rents  and  land  values,  rural,  have  largely  fallen  in 
Europe.     Why? 

What  would  be  the  tendency  of  rents  on  the  new  con- 
tinent? 

What  effect  on  supply  of  products? 

On  margin  of  utility  of  land? 

On  social  dividend?     On  average  comfort? 

If  the  land  of  the  world  were  all  owned  by  one  man 
or  company,  could  rents  be  raised  profitably  for  the 
owner  ? 

Is  there  any  reason  why  landowners  cannot  combine? 

AVould  some  land  be  thrown  out  of  use?     Why? 

Who  would  lose  tlie  rent  on  this? 

If  a  large  amount  of  land  were  taken  from  agriculture 
for  parks,  etc.,  what  effect  would  this  liave  on  the  aggre- 
gate of  rents ?     On  prices  of  products? 

Is  it  the  increase  of  rent  or  the  decrease  of  supply 
which  causes  prices  to  advance? 

What  will  the  tenants  do  if  prices  fall? 

Will  all  tenants  do  this? 

Which  ones? 

If  you  were  a  farmer  with  a  large  farm,  would  you 
liire  men  to  work  for  you?     Why?     How  many? 

When  and  where  would  you  stop  ? 


URBAN  LANDS  89 

Could  you  fix  prices  of  products  ?  Wages  of  employees  ? 
Rents  ? 

What  bearing  has  productivity  of  marginal  land  on 
agricultural  wages? 

What  l)oaring  have  wages  in  other  employments  on 
agricultural  wages? 

An  increased  demand  for  agricultural  produce  exer- 
cises what  effect  on  the  margin  of  utility  of  land?  On 
rents?  On  prices?  On  agricultural  wages?  On  wages 
generally  ? 

Is  the  wages  question  the  solution  of  the  fraction 
social  dividend  over  social  divisor  f 

Interpret  the  following : 

social  dividend  —  rent  —  interest 

wages  = 

wage-earners 

What  would  you  do  with  taxes  in  this  formula? 

What  makes  a  town  lot  valuable? 

Who  made  it  valuable  ? 

Who  gets  the  advantage  ? 

What  do  you  mean  by  the  unearned  increment? 

In  what  sense  are  the  interests  of  landowners  opposed 
to  the  interests  of  all  other  classes  of  society  ? 

Read  in  the  encyclopedia  articles  on  Malthus  and  Mal- 
thusianism. 

Prove  that  rent  does  not  commonly  add  to  price. 

In  justice  ought  the  tenant  to  pay  rent  upon  the  im- 
provements wliicli  he  himself  has  made  upon  the  land? 

How  may  he  be  compelled  under  free  competition 
(rack  rent)  to  do  this. 

What  effect  on  the  condition  of  farmers? 

What  effects  upon  the  habits  of  husbandry? 

What  relation  do  you  perceive  to  the  history  of  Ire- 
land? 

What  effect  on  rents  from  improved  machinery? 


00  ELEMENTARY  ECONOMICS 

What  effect  on  rents  from  improved  methods  and 
science  in  cultivation? 

What  effect  on  rents  from  improved  transportation  ? 

What  effect  on  social  dividend  from  improved  ma- 
chin  eiy? 

What  effect  on  social  dividend  from  improved  methods 
and  science? 

What  effect  on  social  dividend  from  improved  trans- 
portation ? 

RENT  AND   PRICES 

When  and  why  is  there  an  increase  in  the  amount  of 
cultivated  land?     An  abandonment? 

When  prices  rise  for  products  is  this  a  cause  of  higher 
rent  or  a  result  ? 

If  increased  quantities  of  cloth  are  made  and  marketed 
will  the  price  per  yard  rise  or  fall  ?     Why? 

What  effect  from  higher  prices  on  amount  produced? 
Will  these  higher  prices  last? 

What  effect  from  higher  prices  on  agricultural  prod- 
ucts?    Will  these  higher  prices  last? 

Is  the  supply  of  land  equally  as  flexiV)le  as  that  of  cloth  ? 

On  what  terms  in  point  of  cost  can  agricultural  prod- 
ucts be  increased. 

When  will  poor  land  find  occupiers?     Why? 

What  effect  on  the  rental  value  of  better  land  ? 

61.  We  now  approach  a  more  difficult  prob- 
lem. Evidently  as  poorer  lands  have  to  be 
cultivated  the  prices  of  agricultural  products 
will  tend  to  rise.  Shall  we  say  that  the  rise 
in    prices  results   from    the    cultivation   of    the 


RENT  AND   PRICES  91 

poorer  land,  or  that  cultivation  results  from 
the  rise  in  prices? 

The  student  will  do  well  to  stop  here  and 
think  this  out  for  himself. 

Clearly  enough  the  necessity  of  cultivat- 
ing poorer  lands  explains  the  rise  in  prices. 
But  no  individual  cultivator  would  ^ 

Do  rents  canse 

enter  upon  this  poorer  land  other-  prices,  or  prices 
wise  than  as  induced  so  to  do  by 
the  higher  prices.  Producers  accept  the  offer 
held  out  to  them  by  market  values.  Increas- 
ing demand  for  agricultural  products  is  the 
primary  force  which  makes  these  higher  mar- 
ket prices  possible.  Increasing  resistance  from 
nature,  that  is  to  say,  a  higher  necessary  sacri- 
fice in  production,  is  the  fact  which,  added  to 
the  demand,  makes  these  higher  prices  neces- 
sary. When  you  push  hard  upon  a  spring,  the 
resistance  of  the  spring  is  the  result  and  the 
counterpart  of  the  force  with  which  you  press 
it.  When  snow  packs  hard  before  the  plough 
of  the  locomotive,  it  is  in  reality  the  snow  which 
is  getting  packed  by  the  force  directed  against 
it.  In  all  cases  where  action  and  reaction  meet 
in  equilibrium,  it  is  the  action  and  not  the  reac- 
tion which  is  the  primary  force.  And  so  with 
the  cultivation  of  poorer  land  and  the  attendant 


92  ELEMENTARY  ECONOMICS 

rise  in  prices.  Increasing  difficulty  is  the  oc- 
casion of  the  rise  in  prices  —  the  condition  — 
while  increasing  demand  is  the  cause.  Thus 
we  again  face  the  fact  that  utility  alone  — 
demand  —  does  not  explain  value.  Value  is 
the  measure  of  the  resistance  —  the  sacrifice  at- 
tendant upon  obtaining  the  utility  and  satisfy- 
ing the  demand.  Value  increases  as  goods  move 
farther  and  farther  from  the  condition  of  pure 
bounties  of  nature. 

52.  The  land  which  is  just  upon  the  point 
of  nr)t  1)eing  cultivated  if  prices  fall,  or  which 
Margin  of  cniti-  would  not  be  Cultivated    if  a  rent 

yation  results      ^-^         ^^  ^|  j         ^^    ^j        j    ^ 

from  price,  and         ^^ 

explains  rent,  for  pasture  OF  forestry  were  im- 
posed, is  called  land  at  the  margin  of  cultiva- 
tion. Cost  of  production  on  this  marginal 
land  and  the  market  value  of  the  product 
are  equal.  The  cultivation  of  this  land  is  a 
result  of  market  value,  and  cost  and  value  on 
this  land  are  commensurate,  just  as,  in  the  bean 
or  hat  illustration,  price  was  the  outcome  of 
demand,  and  the  marginal  demand  was  found 
to  be  the  equivalent  of  price. 

We  say  truly  that  value  is  always  the  re- 
sultant of  demand  and  sup[)ly,  the  point  at 
which  they  are  in  equililjrium,  —  l)ut  it  is  still 


RENT  AND   PRICES  93 

to  be  remembered  tbat  supply  comes  about  as 
the  result  of  demaiid.  Price  is  high  because 
resistance  is  high.  Where  resistance  would  be 
greater  than  the  price,  production  will  not  take 
place. 

53.  Now  note  that  grain  produced  on  land 
better  than  the  marginal  land  could  be  pro- 
duced profitably  if  prices  were  lower.  On  better  land 
A  surplus  remains  after  the  outlays  ^::^::J^ 
of  production  are  covered.  Who  rent  is  paid, 
gets  the  benefit  of  this  surplus  ?  It  is  due  to 
the  superior  quality  of  the  land.  If  the  culti- 
vator is  a  renter,  he  must  turn  it  over  to  the 
landlord.  Otherwise  the  landlord  will  rent 
to  some  one  else.  At  any  rental  payment  less 
than  this  advantage,  cultivators  of  marginal 
land  would  be  eager  for  this  better  land.  This 
surplus  in  the  market  value  of  the  product  of 
the  better  land  over  the  outlays  of  labor  and 
capital  in  its  production,  is  the  fund  from 
which  rent  is  paid.  Rent,  therefore,  like  wages 
or  interest,  is  drawn  from  the  selling  price  of 
the  product. 

It  thus  appears  that  rents  are  the  result  of 
market  prices  and  not  the  cause  of  them.  The 
rents  paid  in  excess  of  marginal  rent  ch'arly 
cannot  affect  market  prices.     They  are  merely 


94  ELEMENT ABY  ECONOMICS 

a  question  between  landlord  ami  tenant  as 
to  how  much  each  shall  get  out  of  the 
Rents  do  not  mi^rket  value  of  the  product.  As 
affect  prices,  long  as  poor  land  must  be  culti- 
vated to  supply  the  demand,  so  long  prices 
must  be  high  enough  to  compensate  the  pro- 
duction on  this  jjoor  land.  To  cancel  the  rent 
on  the  better  land  would  affect  neither  the 
market  supply  of  products  nor  the  demand ; 
it  would  merely  transfer  to  the  tenant  the 
advantages  whieli  must  attach  to  superior 
land.  Increasing  demand  pushes  cultivation 
upon  poor  soil,  where  the  resistance  to  pro- 
duction is  greater.  Rent,  therefore,  is  the 
outcome  of  increasing  resistance  to  produc- 
tion. Were  there  no  necessity  for  cultivating 
poorer  land,  that  is  to  say,  were  there  no  in- 
crease in  resistance,  there  could  be  no  increase 
in  rent.  iiut  this  is  not  to  say  that  low 
rents  bring  low  prices  and  high  rents  high 
prices,  but  merely  that  the  conditions  of  de- 
mand and  supply  which  bring  low  prices  bring 
low  rents,  and  that  conditions  which  bring  high 
prices  bring  high  rents. 


CHAPTER   VIII 

INTEREST 

What  different  motives  might  one  have  for  laying 
aside  money  ? 

Do  people  connnonly  get  interest  on  money  deposited 
in  national  banks? 

AVould  you  ever  pay  for  having  your  travelling  bag 
guarded  ?     Why  ? 

Why  not  pay  the  banker  for  keeping  your  money  ? 

If  charges  for  keeping  money  were  common  would  any 
saving  still  take  place  ? 


What  different  motives  might  one  have  for  borrowing 
money  ? 

If  for  use  in  farming  what  would  determine  the  rate 
which  one  could  pay? 

Could  a  starving  man  afford  to  borrow  at  100  per  cent 
per  annum? 

Is  bread  alwaj's  of  the  same  utility  to  the  consumer? 

Does  the  borrower  get  an  advantage  from  borrowing  ? 
How? 

The  lender  from  lending?     How? 

What  effect  upon  the  social  dividend  from  fertilizers? 

AVhat  effect  from  improved  methods  of  transportation  ? 
From  opening  up  of  new  supplies  of  land? 

What  effect  from  better  farm  machinery?  Better 
skill  in  working  land  ? 

95 


96  ELE2IENTARY  ECONOMICS 

Wliat  effect  from  more  effective  iiiaeliinery  in  the 
factory  ? 

Does  the  laborer  work  for  his  own  benefit  or  for  some- 
one's else  ? 

Who  consumes  his  wages? 

How  is  it  witli  machines? 

Is  machinery  humanity's  assistant  or  its  competitor  ? 

Does  macliinery  sometimes  turn  laborers  out  of  employ- 
ment?    How? 

'Who  make  the  machines? 

What  effect  from  machinery  upon  the  purchasing 
power  of  other  men's  wages? 

Would  wages  be  higher  if  we  had  to  use  gas  for  light 
instead  of  sunshine? 

If  products  can  be  produced  at  small  effort  will  labor- 
ers be  well  or  ill  rewarded  in  products  ? 

Is  machinery  the  laborer's  assistant  or  his  competitor? 

54.  If  one  has  to-day  a  great  appetite  and  no 
dinner,  and  Avill  later  liave  at  Ids  disposal  two 
Advantages  of  'Hnners  ^vitll  no  increase  of  appetite, 
borrowing.  l)orrowing  must  be  greatly  to  his 
advantage,  and  if  necessary  he  may  pay  enor- 
mous interest  rates  willioiit  exdiaiisting  lliis  ad- 
vantage. Neither  money  nov  wealth  is  of  stable 
utility  to  men,  l)ut  varies  in  utility  relatively 
to  their  needs.  So  the  young  man  rationally 
borrows  the  money  to  complete  liis  education, 
covuiting  upon  paying  at  a  more  convenient 
time.  So  a  l)usiness  man,  in  sti-aits  for  means 
to  save  liis  credit  from    iiijiir\-  or  his   |)roj)erty 


INTEREST  97 

from  forced  sale,  pays  with  advantage  for  the 
right  to  await  a  better  market  or  for  time  to 
muster  his  resources. 

These  cases  are  typical  of  the  rational  demand 
for  loan  funds.  'J'he  demand  for  capital  to  be 
used  in  aid  of  production  is  also  a  familiar 
matter.  There  is,  as  well,  an  improvident  de- 
mand—  the  spendthrift  near-sightedness  w^hich 
burdens  a  needy  future  in  favor  of  a  luxurious 
and  wasteful  present. 

55.  But  for  the  most  part  the  demand  for 
loans  rests  upon  the  fact  that  i)roduction  can  be 
increased  through  the  help  of  capital. 

A  farmer,  for  example,  finds  that  with  the 
expenditure  of  ^1000  in  ditching,  he  can  in- 
crease by  $200  the  annual  productiveness  of  his 
meadow.  If  necessary,  then,  he  can  afford  to 
pay  nearly  20  %  for  borrowed  money  with  which 
to  effect  this  improvement.  If  the  market  rate 
of  interest  is  G%,  he  can  profitably  borrow  more 
than  this  $1000.  Suppose  the  gain  in  produc- 
tiveness from  added  supplies  of  capital  to  be  as 
follows:  — 


Second  31,000  . 

.  8150 

Fifth     )S1,000  . 

.  S70 

Third       1,000  . 

.     1-20 

Sixth       1.000  . 

.     60 

Fourtli    1,000  . 

.       90 

Seventh  1,000  . 

.     50 

With  tlie  rate  of  interest  at  0%  he  can  afford 


98  ELEMENTABY  ECONOMICS 

to  borrow  at  least  •t4000  additional.  To  borrow- 
yet  a  full  'tlOOO  more  would  profit  him  only  as 
much  as  the  necessary  interest  payment.  He 
will  therefore  borrow  say  t750,  at  an  increase 
in  productiveness  of  say  J|50.  The  account 
then  stands  as  follows  :  — 

$1,000  at  S?0()  interest  and  1200  advantage. 
1,000  at  GO  interest  and  150  advantage. 
1,000  at  60  interest  and  120  advantage. 
1,000  at  GO  interest  and  90  advantage. 
1,000  at  GO  interest  and  70  advantage. 
750  at     45  interest  and       50  advantage. 

5,750        345  680 

Note  that  his  demand  for  capital  at  an  estab- 
lished rate  finds  its  limit  at  the  point  where 
usefulness  falls  to  a  level  with  interest  pay- 
ment. Were  some  more  effective  method  of 
ditching  discovered,  it  would  be  advantageous 
to  increase  his  borrowings. 

Note  also,  that  the  limit  of  liis  demand  is  not 
at  all  affected  by  tlie  amount  which  his  pre- 
ceding borrowings  liave  already  profited  him. 
Each  addition  of  capital  stands  on  its  own 
merits  as  a  separate  question. 

Th(;  iiiaiiufacturer,  likewise,  may  find  it  of 
great  profit  to  increase  tin;  voluinc  of  liis  Ixisi- 


INTEREST  99 

ness,  or  to  improve  liis  processes  of  production. 
He  also  stops  at  the  point  of  disappearing  ad- 
vantage in  view  of  the  rates  of  interest  which 
he  is  compelled  to  pay. 

56.  It  is  evident  in  all  these  cases  that  some- 
thing is  borrowed  on  terms  of  a  larger  repay- 
ment later.     That  is  what  interest 

1     'iM  •     •  J  ,   .       The  value  of 

means. ^    lias  increased  payment  in-  time  with 

dicates  merely  that  for  one  reason  ''^^'^^ " 
or  another  men  prefer  to  have  a  thing  now 
rather  than  a  year  from  now.  We  can  make 
use  of  it  during  the  year.  The  earlier  we  get 
it  and  the  longer  we  have  it,  the  more  benefit 
we  obtain  from  it.  This  is  really  why  a  note 
payable  in  the  future  is  subject  to  a  discount. 
The  future  dollar,  or  machine,  or  farm  sells  at 
a  disadvantage  as  against  the  present.  If  we 
had  the  thing  now  we  could  be  using  it  —  add- 
ing to  it  —  making  it  a  percentage  larger  at 
the  end  of  the  term.  So  putting  it  the  other 
way,  we  say  that  the  present  thing  is  at  a  pre- 
mium over  the  future  thing. 

57.  Some  part  of  the  explanation  of  interest 
is  doubtless  to  be  found  in  human  shortsight- 

1  Keep  iu  mind  that  we  are  discussing  pure  intci-est,  net  in- 
terest, ami  not  this  or  that  rate  imposed  or  paid  as  a  kind  of 
insurance  charge  against  rislv  of  loss  of  the  principal.  Sec  note 
to  Section  2(i. 


100  ELEMENTARY  ECONOMICS 

ediiess  and  stupidit}'.  Just  as  the  object  which 
is  near  by  appears  to  the  eye  hirger  than  the 
Irrational  distant  object,  SO  ill  the  mind's  eye 

interest.  fhe  pleasure,  or  pain,  or  burden  of 

a  year  hence  fails  to  impress  us  at  its  real  im- 
portance. We  consume  or  waste  to-day,  not 
realizing  the  want  in  tlie  future,  or  the  burden 
of  payment  or  of  replacement.  At  the  year's 
end,  likewise,  the  pleasure  of  to-day  will  look 
insignificant,  when  placed  by  the  side  of  the 
needs  and  burdens  of  that  time.  Clear-headed 
and  far-sighted  men  do  not  make  this  mistake 
to  the  same  extent  as  the  stupid  people  and  the 
spendthrift  ;  but  almost  all  of  us  make  it  in 
some  measure  ;  most  of  us  are  prone  to  get  into 
unnecessary  debt.  It  is  characteristic  of  sav- 
ages to  make  small  provision  for  the  future  or 
no  provision  at  all. 

58.    What  then  shall  we  take  as  a  definition 
of   interest?     Is  it  a  payment  for  the  use  of 

Is  interest  a  niOUey,  Or,  aS  it  is  sometimes  ex- 
rent  on  money?  pi-essed,  a  rent  on  money?  Not 
accurately,  since  what  we  commonly  borrow  is 
really  the  things  wliich  money  will  exchange 
for.  Tliis  notion  of  interest  as  payment  for 
the  use  of  money,  is  what  is  in  the  minds 
of  those  people   who    1)elieve    tliat   interest   is 


INTEREST  101 

morally  wrong.  Can  dueats  breed?  Keep 
your  gold  pieces  never  so  lung,  will  they  mul- 
tiply? If  they  will  not  increase  in  your  hands, 
why  receive  an  increase  from  the  hands  of  the 
debtor  who  has  borrowed  them  ?  True  enough 
—  but  the  sheep,  which  tbe  money  buys,  breed  ; 
cows  pay  interest  in  the  guise  of  milk  and 
butter,  and  the  farmer  cuts  coupons  of  grass 
and  grain  from  his  fields,  with  which  to  redeem 
the  interest  coupons  on  his  mortgage  note. 

Wliy  not  then  say  that  interest  is  payment 
for  the  use  of  capital  ?  Rut  as  we  have  seen, 
not  all  wealth  is  capital.  Only  that 
share  is  termed  capital  which  is  used  the  use  of 
as  an  aid  in  the  further  production  ''^^^^^  ' 
of  wealth.  Interest,  however,  is  paid  on  any 
sort  of  wealth.  As  the  famous  Frenchman 
Turgot  wrote  :  "  Men  borrow  with  all  sorts  of 
views  and  from  all  sorts  of  motives.  This  one 
borrows  to  embark  upon  an  enterprise  which 
shall  make  his  fortune  ;  that  to  buy  a  tract  of 
land ;  another  to  pay  a  gambling  debt ;  still 
another  to  cover  u  loss  of  revenue  due  to  acci- 
dent; yet  another  to  live  until  he  may  earn 
something  by  liis  labor.  But  all  of  these  mo- 
tives that  influence  the  borrower  are  alto- 
gether indifferent  to   the  lender.     'I'his  latter 


102  ELEMEXTARY  ECONOMICS 

is  concerned  but  with  two  things,  the  interest 
which  he  shall  receive  and  the  safety  of  his 
capital.  He  takes  no  more  thonght  of  the  use 
to  which  the  borrower  will  pnt  it  than  does  the 
merchant  of  the  use  which  a  buyer  will  make 
of  the  food  supplies  which  he  buys.'' 

Interest  is  often  defined  as  payment  for  the  use 
of  wealth.     For  most  purposes  this  is  all  that 

f„  ♦;,.„=»  nf  could  be  wished.     But  it  does  not 

or  tor  tbe  nse  oi 

wealth?  apply  quite  accurately  where  goods 

are  borroAved  and  are  consumed  instead  of 
being  used  and  returned.  If  we  speak  in  this 
case  of  payment  for  the  use  of  wealth,  we  must 
have  in  mind  a  use  which  the  borrow^er  might 
have  made,  but  did  not  make. 

59.  We  therefore  adopt  as  our  linal  state- 
ment a  definition  wdiich,  in  the  absence  of  all 
The  accurate  ^his  explanation  and  illustration, 
definition.  probably    would   not   mean    much  : 

Interest  is  a  difference  in  value  in  favor  of  pres- 
ent over  future  goods.  This  difference  results 
in  part  from  the  haljit  of  underestimating  the 
needs  of  the  future  and  of  burdening  the  future 
in  aid  of  the  present:  in  part  from  tlie  fact 
that  with  the  help  of  capital  an  increase  in 
Ijroduct  is  possible.  That  is  to  say,  tiie  de- 
mand   for  present  goods  on  terms  of  a  larger 


INTEREST  103 

payment  in  the  futiuf,  is  due  in  part  to  the 
helpfulness  of  wealth  in  productive  processes, 
—  in  part  to  a  desire  for  wealth  for  purposes 
which  are  non-productive.  This  demand  for 
unproductive  uses  depends  in  part  upon  the  call 
for  money  to  pay  existing  debts,  in  part  upon 
the  disposition  of  men  to  discount  the  future, 
in  part,  also,  upon  the  fact  that  in  some  cases  a 
larger  service  is  afforded  by  immediate  consump- 
tion of  a  given  sum  of  values  than  will  be  sacri- 
ficed by  the  later  payment  of  a  greater  sum. 

60.  To  say  that  the  rate  of  interest  is  six 
per  cent  per  annum  really  means  that  100  of 
wealth  can   be   sold  to-day  against 

•^       °  How  is  the 

106   at   a   year   from    to-day ;  men  interest  rate 

J.  .1  ,    fixed? 

pay  a  premium  tor  the  present 
thing.  At  what  rate  of  premium  present 
goods  can  be  sold  against  future  goods,  is  a 
question  of  adjustment  between  demand  and 
supply.  The  process  of  adjustment  is  exactly 
like  the  cases,  already  analyzed,  of  selling  hats 
or  apples.  The  rate  of  premium  must  be  low 
enough  so  that  supply  and  demand  may  be  in 
equilibi'inm.  The  helpfulness  of  wealth  as  an 
aid  in  pnidiiction  occasions  the  larger  share  of 
the  borrowing  demand.  When  the  opportuni- 
ties  for   employing  capital  are  limited,  or  the 


104  ELEMENTARY  ECONOMICS 

increase  in  product  from  the  use  of  capital  is 
small,  the  rate  of  interest  must  be  low. 

The  rate  of  interest  is,  then,  commensurate 
with  the  marginal  desirability  of  wealth  — 
speaking  roughly,  with  the  marginal  produc- 
tivity of  capital.  All  borrowers,  however,  ex- 
pect to  make  something  more,  and  many  of 
them  very  much  more,  from  the  use  of  capital 
than  they  pay  as  interest.  ]\Iany  of  them  in 
fact  do  obtain  this  surplus,  that  is  to  say, 
interest  payments  to  lenders  fall  a  long  way 
inside  the  usefulness  of  capital.  If  lender  and 
borrower,  then,  are  benefited  by  the  existence 
of  capital  and  the  loaning  of  it,  it  is  left  to  in- 
quire whether  any  one  is  injured. 

61.  We  have  seen  that  with  wages  and  in- 
terest to  be  paid,  the  producer  of  commodities 
.  ,     ,  has  the  question  before  him  wliether 

Are  capital  and  _ 

laborers  com-  to  hire  more  men  or  to  employ  more 
capital.  Shall  he  purchase  labor- 
saving  machinery?  Or  shall  he  do  his  work  by 
hand  labor?  The  factory  owner  is  constantly 
replacing  employees  by  machinery.  Type- 
setting machines  are  displacing  the  printers. 
Air-l)rakes  lake  the  place  of  In-akemen.  In 
a  certain  sense,  then,  capital  is  tlie  competitor 
of  the  laborer  ;  wliich    will  do    the  work   the 


INTEBEST  105 

cheaper  decides  which  shall  get  the  job.  Yet 
somehow  we  feel  certain  that  labor-saving  appli- 
ances make  for  the  general  well-being,  that  the 
riots  of  English  and  French  workmen  against 
the  spinning-jenny  and  the  power-loom  were  ig- 
norant mistakes.  In  truth,  the  hostility  of  wage- 
earners  toward  inventions  is  an  error  which  is 
fast  fading  from  the  world.  All  these  new  pro- 
cesses and  inventions  are  methods  of  increasing 
the  social  dividend.  They  are  savers  and  mul- 
tipliers (if  human  energies  in  production. 

62.  But  suppose  the  wage-earner  to  answer, 
"  This  may  be  true,  l)ut  we  don't  get  the  in- 
crease. It  is  caused  by  capital ;  it  goes  to  the 
owner  of  the  capital ;  and  we  are  driven  from 
our  ])laces  to  starve  Avhile  the  machines  do 
the  work."  Is  this  a  fallacy?  And  how  shall 
we  prove  it  a  fallacy? 

A  full  demonstration  of  it  must  await  the 
discussion  of  Profits  and  Wages  in  the  next 
chapter.  But  it  is  well  in  this  connection  to 
recall  again  the  origin  of  capital.  The  question 
It  is  merely  stored-up  labor.  Labor  "gttly  placed, 
is  employed  in  creating  it,  and  it  continually 
wears  itself  out  and  must  be  replaced  by  labor. 
This  is  illustrated  in  the  constant  wear  and  tear 
of  machiner}',  in  the  consumption  of  coal,  and 


106  ELEMENTABY  ECONOMICS 

in  the  repair  of  factories,  Ijuildiiigs,  cars,  and 
ships.  And  not  only  does  it  require  wage- 
earners  to  make  and  repair  the  machiner}-,  but 
to  oversee  and  operate  it.  Capital  is  a  round- 
about application  of  labor  to  production.  It 
would  be  odd  if  in  the  resulting  increase  of 
product  the  stored-up  labor  should  get  all  or 
most  of  the  advantage.  Nor  does  it  so  in  fact, 
though  we  have  as  yet  seen  no  reason  to  assert 
that  the  laborer  gets  the  advantage.  It  must, 
however,  be  true  that  as  capital  increases,  inter- 
est, which  measures  the  marginal  desirability 
of  capital,  must  fall ;  the  borrower  obtains  the 
services  of  capital  more  cheaply.  The  advan- 
tage must  then  fall  to  either  the  laborer  or  his 
employer.  The  case  is,  therefore,  not  one  of 
laborer  against  lender,  but  rather  of  laborer 
against  employer,  —  against  the  user  rather 
than  against  the  owner.  Are  the  benefits  of 
increased  capital  really  somehow  intercepted  by 
the  employer  or  by  some  one  else,  so  that  they 
fall  short  of  reachinfj  the  was^e-earner  ? 

Doubtless  it  often  happens  that  by  falling 
prices  the  market  is  so  iir.K  li  w  idened  that  the 
number  of  wage-earners  is  really  increased, 
without  reference  to  those  eiii[)loyed  iu  making 
machines.     This  is  ordinarily   the  case  when  a 


INTEREST  107 

small  fall  in  prices  brings  about  a  more  than 
proportionate  increase  in  consunii)-  „   ,. 

tr      tr  i   ^  Machines  some- 

tion,  as,  for  example,  in  the  case  of  times  displace 
books;   bnt  this  is  as  clearly  often 
not  true,  as,  for  example,  where  agricultural  ma- 
chinery displaces  hand  labor  ;  no  great  increase 
in  food  products  can  be  marketed.     Evidently, 
if  machines  did  not  economize  labor  they  would 
not  be  used.    An  increase  of  product  must  result . 
from  a  given  sum  of  expenditure.    But  whether 
machines  in  any  particular  industry  do  or  do  not 
take  the  place  of  labor,  it  will  be  made  clear  in 
the  next  chapter  that  the  wage-earner,  in  the  out- 
come, gets  most  of  the  benefits  from  the  econ- 
omy of  effort  made  possible  through  machinery. 


SUGGESTIVE  QUESTIONS 

In  what  case  does  a  physician  treat  his  hoi'ses  as 
capital?     In  what  case  as  mere  consumption  goods? 

Would  an  increased  supply  of  money  aifoct  the  crop 
from  any  piece  of  land?  The  butU-r  from  anj^  cow? 
The  ratio  between  the  yearly  output  —  dividend  —  and 
the  market  value  of  any  property  ? 

Assuming  tliat  doubling  the  currency  would  double 
tiie  price  of  cows,  sheep,  and  farms,  would  it  do  the  same 
thing  for  calves,  lanibs,  and  harvests  ? 

What  effect,  then,  on  interest  rates? 

In  what  sense  is  interest  a  ratio? 

What  forces  determine  this  ratio?   Which  is  ultimate? 


CHAPTER   IX 

WAGES   AND  DISTRIBUTION 

Are  machines  productive  ?     In  what  sense  ? 

Are  they  productive  alone?  What  must  go  with 
them? 

How  were  they  produced  ? 

Is  there  any  relation  between  high  standards  of  living 
and  high  efficiency  ? 

Does  our  higher  standard  of  living  make  our  wages 
higher  than  European  wages? 

What  does  make  our  wages  higher  ? 

lias  the  fertility  of  our  soil  anything  to  do  with  it? 

What  limits  the  employer's  disposition  (ability)  to 
pay  wages? 

Can  the  farmer  increase  the  crop  by  being  hungry? 
If  so,  in  what  sense? 

Can  he  increase  his  ability  to  pay  wages  by  the  fact 
that  his  hired  man  has  a  large  family? 

Can  the  hired  man  use  this  fact  to  increase  his  wages? 

Do  wages  equal  wants  or  wants  wages?  Which  is 
the  nearer  the  truth  ? 

Are  wonien's  wages  lower  than  men's  because  they  can 
afford  to  work  for  less  ? 

Wiiv  does  not  the  employer  have  to  pay  them  more? 
AVliy  may  he  not  pay  them  still  less  ? 

Do  employers  make  more  by  hiring  women  than  men? 

If  the  population  of  the  world  should  double,  what 

108 


WAGES  AND  DISTRIBUTION  109 

nffect  oil  the  aggregate  production  of  commodities? 
Would  the  IMM"  capita  production  maintain  itself? 
Wliy?  Discuss  the  effect  (1)  on  agricultural  production, 
(2J  on  other  production. 

03.    It  cannot  be  too  firmly  held  in  mind  that 
in  any  investigation  of  economic  facts  we  are 
studying   mankind   in    its  relations 
to   its    environment.       Man   is   the  dnSon  qnes^-'"' 

actor  and  the  central  fact.  Neither  tio°s  of  corre- 
spondence, 
land  nor  capital  serves  for  produc- 
tive purposes,  except  as  subordinate  to  man 
and  directed  by  him.  Neither  is  productively 
independent.  Tlie  economic  point  of  view 
conceives  of  man  as  the  actor,  and  of  all  other 
things  as  raw  material  at  his  hands.  All  pro- 
duction takes  place  for  his  benefit,  in  response 
to  his  demand,  and  goes  to  his  benefit.  Rent 
is  not  paid  to  land,  but  to  landowners,  interest 
not  to  capital,  but  to  capital  owners.  The 
national  dividend  is  distributed  among  the 
members  of  the  producing  society  for  consump- 
tion by  them,  and  not  by  land,  or  machines,  or 
wealth.  True,  the  advantages  do,  in  some 
measure,  go  to  particular  members  of  society 
by  virtue  of  their  possession  of  land  or  capital, 
but  it  is  none  tlie  less  true  that  consumption 
depends    ujion    ])rn(luc'tion.    and    tliat'  average 


110  ELEMENTARY  ECONOMICS 

consumption  is  the  equivalent  and  outcome  of 
average  production. 

64.  The  question  of  wages  is  too  often 
treated  as  if  what  the  wage-earners  receive 
„  were    fixed   bv  what  they  need  to 

Wages  a  ques-  "  ^ 

tion  of  product,  live  upon,  instead  of  by  what  they 

and  not  of  .  ,  ,  y  .     . 

standards  of  i^'G  able  to  produce.  It  IS  con- 
^^^"  stantly  asserted  that  wages  are  gov- 

erned by  the  standard  of  living.  That  people 
live  well  is  put  forward  as  a  reason  that  they 
are  well  paid  —  as  explanation  for  the  fact,  that 
they  are  able  to  live  well.  15ut  in  triith  lii^'h 
living  has  little  to  do  with  the  case,  otherwise 
than  as  wholesome,  healthful,  contented  living, 
with  good  food  and  in  healthful  surroundings, 
may  aid  in  bringing  about  a  high  productive 
efficiency.  But  the  only  way  for  society  to 
consume  more,  to  establish  a  high  average  of 
comfort,  is  to  produce  more. 

65.  The  question  of  wages  is  confused,  as 
are  many  other  economic  questions,  by  a  mis- 
understanding of  tlie  meaning  of  demand  and 
supplt/.  To  say  that  tiie  value  of  any  com- 
Hone  the  less  modity  is  fixed  by  the  equation  of 
a  qnestion  of      Jemaud  and  supply  is  a  correct  and 

demand  and 

anpply.  a  Safe  enough  })roposition.     lint  to 

8Upj)ose   that  the  more  laborers  there  are,  the 


WAGES  AND  DISTRIBUTION  111 

lower  wages  will  be,  or  llnit  the  fewer  hours 
or  the  more  lazily  they  work,  the  higher  wages 
will  be,  is  grossly  to  pervert  the  meaning 
of  the  demand  and  supply  doctrine.  The 
demand  for  labor,  and  the  wages  at  which  this 
demand  will  employ  the  labor,  depend  upon 
the  value  of  the  product  which  the  laborers 
will  bring  to  the  employer.  If  a  farm  hand 
adds  to  the  crop  by  only  one  bushel  of  wheat 
a  day,  it  is  certain  that  his  wages  will  not 
stand  at  two  bushels  of  wheat  per  day,  or  at 
an  amount  of  money  which  will  buy  the  two 
bushels.  If  operatives  in  a  factory  make  each 
but  one  pair  of  shoes  a  day,  they  are  safe  from 
ever  getting  two  pairs  each  for  doing  it.  So 
if  the  population  of  any  one  city  or  of  the 
world  shouhl  double,  wages  would  not  fall  by 
a  half,  or  at  all,  unless  the  average  produc- 
tiveness of  labor  fell  as  a  result  of  the  over- 
crowding and  of  the  attendant  disadvantages 
of  opportunity. 

66.  But  something  remains  to  be  said  in 
explanation  of  the  wages  of  particular  laborers 
or   of    particular   classes    of    hil)(tr- Wages  in  par- 

T,     .  J    .       1        •    I-  11         ticular  indus- 

ers.     It  is  not  to  be  inierretl   that  tries, 

the    employer   always    pays   all    he    can.       He 

employs  men  for  the  protit  he  gets  out  of  it. 


112  ELEMENTARY  ECONOMICS 

He  will  not  pay  more  than  the  value  to  him 
of  tlie  labor  or  its  product.  How  near  he 
comes  to  a  full  payment  will  depend  upon 
what  the  competition  of  his  own  or  of  other 
industries  compels  him  to  pay.  The  practical 
working  of  this  competition  will  shortly  come 
up  for  further  discussion. 

Also  it  must  be  held  in  mind  that  precisely 
because  wages  depend  on  product,  wages  must 
be  low  if  so  many  people  work  at  one  thing  as 
to  compel  a  low  selling  price  in  order  to  sell 
the  entire  product.  We  shall  later  see  that 
this  largely  explains  the  low  wages  of  women. 

Again,  it  is  found  that  the  same  sort  of  work 
is  well  paid  in  one  country  and  ill  paid  in 
and  in  different  another.  How  explain,  for  exam- 
countries.  pig_^    the    liigl^    wages    of    domestic 

servants  in  America,  and  the  relatively  low 
wages  in  Europe  ?  Do  not  the  European 
servants  do  equally  good  work?  Are  not 
the  results  as  valuable  to  the  employer?  Or 
is  it  true  that  Americans  desire  this  sort  of 
services  more  strongly  than  do  Europeans? 
The  difference  is  really  in  tlie  demand.  It  is 
doubtless  true  in  a  sense  that  the  low  wages 
are  a  result  r»f  tlie  large  su]jply  of  laborers 
in    this  particular    industry.      But    how  great 


WAGES  AX  I)  DisriiiBuTioy  113 

this  supply  is  depends  on  what  wages  other 
industries  offer,  and  how  many  laborers  they 
will  take.  That  is  to  say  the  demand  -r-  the 
competition  —  that  bears  upon  wages  in  any 
given  industry  or  employment,  is  in  largest  part 
the  demand  or  competition  of  other  industries 
and  employments.  If  domestic  servants  in 
Europe  earn  less  in  other  emplopnents  than 
they  can  earn  in  these  other  employments  in 
America,  it  will  be  possible  to  hire  them  as 
servants  in  Europe  at  lower  wages  than  they 
can  obtain  as  servants  in  America.  Their 
producing  powers  as  servants  may  be  equally 
high  there,  but  their  producing  powers  in 
general  are  much  lower  there  than  in  America. 
They  will  therefore  have  to  work  there  as  ser- 
vants at  a  lower  marginal  utility.  In  America 
we  have  to  pay  high  if  we  get  them  to  work 
as  servants.  In  Europe  the  employers  might 
most  of  them  be  willing  to  pay  equally  higb 
wages  if  they  had  to ;  but  they  do  not  have  to 
The  proposition  therefore  stands,  that  produc- 
tion fixes  wages  ;  but  we  must  look  at  the 
entire  range  of  productive  employment. 

67.  It  should  now  be  clear  and  it  is  funda- 
mental that  the  first  concern  of  society  in  the 
problem  of  distribution  is  to  have  the  largest 


114  ELEMEXTARY  ECONOMICS 

})ossil)le    product   to    divide.       While  we    may 
„    „.       ,        tind    reason   in   later  discussions  to 

Conflicts  of 

interest  in         question  liow  far  human  well-being 

prodnotion,  .     ,  -,         '      -.i    ^i 

is  bountl  up  witli  the  maximum  com- 
mand of  wealth,  the  question  of  distribution  is 
evidenth',  for  the  various  participants,  a  ques- 
tion of  how  to  obtain  the  largest  share  in  the  dis- 
tribution.     Behind  distribution  is  production. 

For  each  of  the  factors  in  production  there 
are  but  two  possible  methods  of  increasing  its 
distributive  share  —  (1)  by  increase  in  the  total 
social  output  ;  (2)  by  increase  in  one  share  at 
the  expense  of  one  or  all  of  the  others. 

Priniaril}'  the  interests  of  all  producers  run 
parallel  in  the  attempt  to  attain  the  highest 
possible  social  dividend.  But  in  the  distribu- 
tive process  it  is  equally  clear  that  the  interests 
are  adverse.  When,  for  example,  two  boys 
go  fishing  or  hunting  on  shares,  harmony  is 
proljable  until  the  time  comes  for  dividing 
the  spoils  ;  then  peace  is  less  certain.  So 
partners  in  husiness  are  each  as  loyal  to  the 
partnership  interests  as  either  would  be  were 
the  enterprise  all  his  own  ;  against  the  busi- 
ness world  they  stand  united.  But  in  the 
division  of  llic  profit  and  in  tlie  settlement  of  the 
partnership  accounts  they  are  not  (jiiu,  hut  two. 


WAGES  AND  DISTRIBUTION  115 

Thus  we  must  beware  of  the  sweeping  propo- 
sition that  the  interests  of  all  classes  of  produ- 
cers are  parallel,  or  that  the  interests  of  capital 
(capitalists)  and  labor  (laborers),  or  of  em- 
ployers and  employees,  are  one.  They  are  never 
so  in  distribution,  and  are  not  always  strictly 
so  in  i)roduction.  This  fact  is  strikingly  illus- 
trated in  trusts,  monopolies,  and  combinations. 
It  is  to  the  interest  of  each  that  others  should 
produce  as  much  as  possible ;  but  it  is  often  to 
the  interest  of  one  producer  that  his  own  prod- 
uct be  materially  limited,  and  the  price  thereby 
increased.  A  small  product  may  have  a  greater 
market  value  tlian  a  large.  It  is  better  to 
receive  50%  of  75  than  30%  of  100.  At  all 
events,  the  saving  through  smaller  expense  in 
wages  and  raw  material  generally  outweighs 
any  decrease  in  the  value  of  the  entire  product. 

But  excepting  cases  of  this  sort  all  producers 
are  concerned  in  bringing  about  the  largest 
possible  production. 

68.  If  there  were  no  employers  and  each 
man  worked  for  himself,  it  is  evident  enougli 
that  more  and  better  tools  and  ^j^^^  machinery 
machinery,  and  more  effective  pro-  q°estion. 
ductive  processes  and  falling  rates  of  interest 
on  the  use  of  capital  would  vastly  benefit  the 


116  ELEMENTARY  ECOyOillCS 

producers.  It  %aou1(1  be  for  each  producer  like 
a  multiplication  of  his  productive  powers. 

But  is  the  same  thing  true  in  the  system  of 
great  employers  and  monster  factories  ?  This 
is  the  question  left  over  from  the  last  chapter 
for  discussion.  We  saw  that  the  Vjenefits  of 
advancing  civilization  in  better  processes,  larger 
capital,  and  improved  machinery  do  not  remain 
with  the  owners  of  wealth  and  capital  ;  but  do 
they  remain  with  the  employers  —  the  managers 
of  the  capitalized  wealth? 

Evidently  not  entirely  —  for  it  is  open  to  the 
laborer  to  work  for  himself  if  he  prefer.^  Many 
of  them  do  this,  and  gradually  themselves 
become  employers  of  labor.  Oilier  laborers, 
again,  find  it  more  to  tlieir  advantage  to  work 


1  As  a  practical  fact,  of  course,  insufficiency  of  capital,  even 
for  tlie  siniplf.T  hand  industries,  makes  an  imitortant  limitation  to 
this  statement.  It  is  true  also  that  the  mechanic,  trained  to  one 
small  part  of  an  industrial  proce.ss,  is  ill  prepared  to  undertake 
the  complete  process  on  his  own  behalf.  But  it  is  none  tlie  less 
true  that  if  the  position  of  watje-earner  were  not,  on  the  whole, 
more  desirable  than  that  of  independent  producer,  men  could 
and  would,  as  they  once  did,  accept  the  methrjds  and  compensa- 
tions of  the  independent  system.  The  condition  of  employee  is 
imposed  upon  no  one,  otherwise  than  as  it  is  self-imposed  by 
those  who  have  jud;;ed  it  to  Ije  the  more  advantageous  opening: 
and  in  large  measure  the  decision  is  revocalde,  if  any  one  cared 
to  revoke  it.  That  laborers  would  so  rarely  consider  a  return 
to  the  old  method,  no  matter  how  readily  open,  is  merely  an- 
other aspect  of  I  he  fa<t  that  the  modern  system  is  not  purely 
for  the  benefit  of  some  one  else  than  the  laborer. 


WAGES  AND   DISTRIBUTION  117 

for   an   employer.     Each   follows    his    line    of 
greatest  advantage  or  of  least  sacrifice. 

The  employer-class  exist  because  of  their 
ability,  by  reason  of  the  possession  in  peculiar 
degree  of  capital  loaned  or  hired,  or  by  reason 
of  superior  ability  in  management,  or  by  reason 
of  economies  in  production  possible  only  in  in- 
dustries conducted  on  a  large  scale,  to  procure 
from  labor  larger  utilities  and  to  provide  for  it 
a  larger  recompense,  risks  being  considered, 
than  laborers  could  obtain  from  society  without 
the  intervention  of  the  employer. 

The  demand  of  the  employer  is  an  interme- 
diate form  of  the  demand  of  consumers  for  the 
goods    produced.       The     employer  Employer  as  a 
may  be  regarded  as   the   agent   or  "Middleman  is 

•JO  try  subject  to  com- 

representative  of  the  social  demand  petition. 
engaged  in  the  purchase  of  the  productive 
power  of  labor,  and  compelled  by  competition, 
if  effective,  to  recompense  laborers  approxi- 
mately in  the  proportion  in  which  their  ser- 
vices have  contributed  to  the  selling  price  of 
the  product.  No  distinction  in  principle  ex- 
ists for  present  purposes  between  the  goods 
commonly  termed  services  and  those  goods 
fixed  and  embodied  in  matter  commonly  termed 
commodities. 


118  ELEMENTARY  ECONOMICS 

69.  Before  Ave  proceed  to  theoretical  analysis, 
let  us  see  how  things  go  on  in  actual  business. 

One  shoe  manufacturer,  A,  has  exceptional 
ability  of  management ;  he  shows,  we  will  say, 
unusual  skill  in  directing  men  so  as  to  get  the 
most  work  out  of  them,  or  so  as  to  make  their 
work  the  most  effective, —  or  he  has  exceptional 
skill  in  judging  to  whom  to  give  credit,  or  in 
advertising,  or  in  buying  supplies,  or  in  obtain- 
ing the  top  price  for  his  goods.  Evidently  he 
The  supply  of  ^^'^  employ  his  men  as  cheaply  as 
employers.  another  employer,  and  sells  his  prod- 
uct on  the  same  general  market.  He  is  making 
large  profits,  but  not  at  the  expense  of  wages 
or  by  higher  prices  to  consumers. 

B,  a  competitor  of  less  skill,  finds  it  necessary 
to  pay  the  same  rate  of  wages  and  to  sell  on 
the  same  general  level  of  prices.  His  inferior 
ability  shows  itself  in  lower  profits.  Still  a 
third  employer,  C,  has  small  skill  in  manage- 
ment ;  he  would  almost  better  keep  out  of  the 
race,  —  could  make  nearly  as  much  by  working 
for  A  or  B.  C  is  a  marginal  manufacturer. 
His  outlays  in  wages  and  other  expenses  hold 
his  profits  down  to  nearly  or  quite  to  the  wages 
mark;  if  things  get  much  closer  with  him,  he 
will  go  out  of  business.     Now  suppose  that  A 


WAGES   AND    DISTUinrTTON  119 

decides  to  enlarge  his  trade  by  putting  prices 
down  a  little,  or  that  X,  a  wage-earner  in  hat- 
making,  concludes  to  try  his  fortune  at  manu- 
facturing. It  is  time  for  C  to  drop  out.  If 
Y  and  Z  enter  the  field,  A  and  B  will  meet 
an  increase  of  competition  which  may  further 
force  down  prices  and  profits.  Possibly  B  will 
become  marginal  and  be  the  next  to  give  up 
the  struggle.  A's  profits  suffer,  but  do  not 
entirely  disappear  ;  prices,  however,  are  falling 
for  consumers. 

It  is  of  no  use  for  the  employers  to  tr}^  to 
hold  up  their  profits  by  lowering  wages.  Even 
if  they  combine,  the  success  can  be  only  tempo- 
rary ;  other  industries  will  get  the  laborers,  if 
those  employers  fix  their  wages  below  the  mar- 
ket level.  The  only  resource  in  the  long  run 
for  getting  exceptional  profits  is  to  form  some 
sort  of  pool,  or  trust,  or  comljination,  and  by 
limiting  the  product  to  push  up  the  prices. 
We  are  now  ready  for  the  theory. 

Relatively  to  society,  employers  stand  as  a 
class  of  wage-earners  whose  remuneration,  other 
things  being  equal,  is  competitively  determined 
by  the  supply  of  them.  As  with  other  forms 
of  wages  or  profits,  so  with  employers'  profits : 
peculiar  advantages  in  abilit}    or  capital   will 


120  ELEMENTARY  ECONOMICS 

bring  correspondingly  large  returns,  the  amount 
of  the  profit  being  mostly  determined  by  the 
degree  in  which  the  employer  is  able  to  reduce 
his  expenses  of  production  below  those  of  the 
marginal  producer,  whose  profits  are  practically 
of  equal  importance  with  the  wages  he  could 
earn  in  working  as  wage-earner.  A  tendency 
toward  a  fall  in  the  profits  peculiar  to  ability, 
analogous  to  the  tendency  toward  a  fall  in  rents, 
exists  as  the  differential  advantages  of  ability 
become,  by  increase  in  intelligence  and  educa- 
tion, less  marked. 

70.  The  line  which  separates  the  independent 
workman  from  the  employer  on  the  one  hand 
and  the  wage-earner  on  the  other  is  easily 
crossed.  Wage-earners  are  continually  chang- 
ing to  self-employment,  as  are  the  self-employed 
to  wage-earners  or  to  employers.  There  are 
marginal  wage-earners  and  marginal  indepen- 
dent workmen  —  men  who  are  upon  the  point 
of  changing  to  employers.  There  are  em- 
ployers whom  any  fall  in  profits  will  push  into 
wage-earning  or  independent  production,  — 
marginal  employers.  It  is  then  evident  that 
the  profits  of  employers  are  never  safe  from 
competition  firmi  ihe  outside,  and  that  wages 
and   profits,  being    in    truth    but  dilferent  as- 


WAGES  AND  DISTRIBUTION  121 

pects  of  reward  for  human  activity,  have  a 
normal  and  natural  relation  to  each  other.  The 
profits  of  the  marginal  employer  are  not  greatly 
larger  than  the  wages  of  employees.  Employers 
of  greater  skill  make  proportionately  greater 
profits.  They  produce  and  sell  upon  the  same 
market  conditions  as  does  the  marginal  pro- 
ducer, but  are  able  to  reduce  their  outlay  of 
production  below  his  outlays.  In  the  competi- 
tion of  different  employers  with  each  other,  the 
market  price  is  the  measure  of  the  sacrifice  of 
the  marginal  producer.  The  larger  profits  of 
other  producers  can,  therefore,  from  no  point 
of  view  be  regarded  as  forming  an  addition  to 
price.  The  marginal  employer  is  driven  from 
business  by  the  ability  of  his  competitors  to 
achieve  economies  in  production  to  which  he 
cannot  attain  ;  prices  go  too  low  for  him. 

This  competition  of  employers  with  each 
other  is  sharp  and  effective.  They  bid  against 
each  other  for  the  services  of  capi-  ^he  competition 
tal  as  well  as  of  labor.  As  more  of  employers. 
capital  is  offered  and  rates  of  interest  fall, 
these  competing  producers  find  it  possible  to 
produce  and  sell  at  lower  prices ;  thereby  by 
competition  they  cancel  for  eacli  oilier  the 
advantages   of    these   lower    rates   of    interest 


122  LLEMENTARY  ECONOMICS 

upon  capital.  That  is  to  say,  the  benefits  of 
lower  interest  rates  are  passed  along  to  con- 
sumers under  the  form  of  lower  prices. 

71.  It  follows,  tlieii,  that  the  increased  social 
product  due  to  the  larger  use  of  capital  in  the 
form  of  machines  and  labor-saving  devices,  is 
not  intercepted  by  capitalists  under  the  form 
of  interest  or  by  employers  under  the  form  of 
profits,  but  goes  for  the  benefit  of  humanity  as 
a  whole,  and  is  distributed  among  individuals 
or  classes  in  proportion  to  their  consumption. 
Ill  tlieir  character  of  consumers,  wage-earners 
get  tlieir  share  through  the  increasing  purchas- 
ing power  of  their  wages.  As  we  have  already 
seen,  it  is  the  competition  of  employers  to 
obtain  the  services  of  laborers,  which  guaran- 
tees to  the  laborers  a  compensation  proportion- 
ate to  the  services  rendered. 

SUGGESTIVE  QUESTIONS 

Who  are  ultimately  l)eiiefited  by  lower  rates  of  inter- 
est following  upon  larger  supplies  of  capital? 

By  lower  rents  ? 

By  lower  profits? 

Do  lower  profits  come  about  chiefly  through  payment 
of  hif,'hf'r  wages  or  through  fall  in  i)rices? 

How  does  the  margiiiHl  law  apply  to  employers? 

Do  wages  and  profits  tend  to  preserve  any  general 
relation  to  each  other?     (See  Section  '27.) 


WAGES   A.\l)    DTSTUTBUTJON  123 

Does  the  laborer  get  wages  in  proportion  at  all  to  the 
profits  of  his  employer? 

Ought  he? 

The  wage-paying  ability  of  what  employer  is  commen- 
surate with  niaikt't  wages? 

Is  this  fair  to  the  wage-earner? 

Can  it  be  changed  by  trades-unionism  ? 

Or  in  any  other  way? 


POPULATION 


CHAPTER  X 

INCREASING     AND     DIMINISHING 
RETURNS 


Look  up  Malthus  in  the  Encyclopsedia. 

What  bearing  has  density  of  population  on  rent? 

On  wages? 

Explain  the  law  of  the  survival  of  the  fittest  as  it  ap- 
plies to  the  lower  orders  of  life. 

Does  it  apply  in  equal  degree  to  humanity  in  the  com- 
plex conditions  of  modern  life  ? 

Do  we  let  it  apply  ? 

Have  lower  orders  of  life  any  standard  of  comfort 
similar  to  that  among  men? 

Do  their  standards  change  ? 

Do  ours  ? 


72.  During  the  earlier  years  of  this  century 
the  English  Poor  Laws  were  the  subject  of 
The  Poor  Law  "^uch  discussion  and  criticism. 
agitation.  xhe    provisions    under  which   help 

could  be  procured  by  the  poor  were  extremely 
lax.  As  a  practical  fact  all  men  so  lacking  in 
energ)'  as  to  refuse  to  work,  and  so  lacking  in 
pride  as  to  accept  charity,  found  help  waiting 
for  them  tlirough  special  taxes  levied  for  this 

124 


POPULATION  125 

purpose  and  callud  the  poor  rates.  These  taxes 
were  assessed  upon  the  cultivators  of  land. 
In  some  cases  the  poor  rates  became  so  great  a 
burden  as  to  bring  about  the  abandonment  of 
cultivation.  In  any  case  the  ability  of  the 
cultivators  to  pay  wages  was  seriously  affected. 
The  resulting  lower  wages  made  a  still  greater 
call  for  help  from  the  rates.  Industry  and 
energy  were  discouraged,  and  a  premium  placed 
at  their  expense  upon  idleness  and  improvi- 
dence. But  the  full  effect  of  these  injudicious 
laws  did  not  stop  with  this.  Aid  was  given  to 
patiper  families  in  proportion  to  the  size  of  the 
family.  To  the  pauper  this  meant  that  the 
more  children  he  had  the  more  help  he  could 
ffet.  As  it  became  more  difficult  for  the  in- 
dustrious  man  to  support  his  famil}^  it  became 
more  easy  for  the  shiftless.  A  direct  incentive 
was  given  for  the  multiplication  of  the  shift- 
less.     English  agriculture  was  made  to  suffer 

in  order   that  English  manhood  might  be  de- 
cs C3 

graded. 

73.  Most  effective  among  the  protests  against 
this  system  was  the  celebrated  Essay  upon  the 
Principle  of  Population,  written  by  the  Rev. 
Thomas  R.  Malthus,  a  clergyman  in  the  Eng- 
lish Church,  who  held,  for  a  large  part  of  his 


126  ELEMENTARY  ECOXOMICS 

life,  a  professorsliip  in  Political  Economy  and 
History  in  an  educational  institution  belonging 
to  the  East  India  Company  at  Haileybury,  Eng- 
land. 

]Malthus  went  much  further  than  merel}'  to 
condemn  the  artificial  stimulus  to  improvident 
child-beariufT.  He  elaborated  two  general 
propositions  of  great  importance.  The  first 
was  in  substance  what  we  have  already  stated 
as  the  law  of  diminishing  returns  in  agriculture 
—  tlie  assertion  that  with  increasing  demand 
for  food  products  there  is  a  marked  increase  in 
the  difficulty  of  procuring  them.  Over-popu- 
lation is  therefore  linked  witli  poverty.  His 
second  proposition  was  that  the  tendency  of  the 
human  race  is  strongly  toward  over-population, 
and  that  nothing  but  conscious  and  continuous 
resistance  can  overcome  this  tendency. 

74.  Setting  aside  all  investigation  of  what 
tendencies  are  likely  to  develop  with  regard  to 
Prodnction  and  population,  we  are  none  the  less 
population.  concerned  to  determine  what  effect 
will  come  from  an  increase  of  piipulation,  should 
such  increase  take  place.  The  agricultural  law 
of  diminishing  returns  is  of  especial  iin[)ortance 
in  this  regard,  by  virtue  of  its  bearing  upon  the 
productive  power  of  human   laboi-.      First  we 


POPULATION  127 

must  ol)sei've  that  over-sparseness  of  poi)nla- 
tion  is  unfavorable  eitlier  to  the  production  of 
wealth  or  to  the  development  of  civilization. 
Pushed  by  increasing  numbers  men  swarm  from 
the  parent  hive  somewhat  as  do  bees.  Migra- 
tions to  new  continents,  the  development  of  the 
variety  of  natural  resources  which  different  re- 
gions present,  the  growth  of  international  trade, 
the  exchange  of  the  different  products  of  art 
and  science  and  industry,  and  the  accompanying 
interchange  of  science,  thought,  literature,  and 
institutions,  make  powerfully  for  the  material 
and  intellectual  progress  of  the  race.  Hunting 
or  pastoral  or  purely  agricultural  types  of 
society  are  rarely  progressive.  Even  upon  the 
farm,  and  still  more  noticeably  in  the  shop,  the 
advantages  of  associated  effort  iire  apparent. 
One  man  to  pitch  up  the  hay  and  another  to 
make  the  load  are  of  mutual  ad\antage.  Ne^' 
colonies  often  suffer  acutely  from  lack  of 
numbers. 

75.    But  just  as  on  the  farm  there  comes  n 
point  at  which  an   increase  in  the   number  ot" 
laborers  takes  place  only  at  a  lower  Dijnjnishing 
per  capita    productiveness,  so  in   a  returns. 
state  or  continent  there  mav  come  about  a  con- 
dition of  over-population.      The  very  fact  that 


128  ELEMENTARY  ECONOMICS 

nations  swann  is  a  proof  of  this.  After  a  cer- 
tain point  is  reached,  the  tendency  of  over- 
popnhition  is  toward  a  reduced  productiveness 
of  labor,  and  therefore  toward  lower  wages  for 
the  laborers.  This  is  the  old  law  of  diminish- 
ing returns. 

Proceeding  in  substance  upon  this  law  as  a 
basis  it  was  urged  by  Malthus,  and  is  still  urged 
Is  overpopnia-  ^J  JM^-Jiy  economists,  that  the  world 
tion  coming?  j>^  unavoidably  set  toward  poverty 
—  that  the  human  race,  like  all  other  orders  of 
life,  is  certain  to  increase  in  numbers  until 
starvation  sets  a  limit,  unless,  indeed,  the 
human  race,  unlike  the  lower  orders,  shall  take 
thought  of  its  tendencies  and  set  itself  to 
rational,  purposed,  continuous  resistance. 

76.  All  orders  of  vegetable  life  press  hard 
upon  one  another,  and  increase  to  the  limit  of 
their  opportunity.  The  weaker  go  to  the  wall 
simply  because  the  stronger  are  pushing  for 
place.  Wherever  fertility  allows  and  condi- 
tions permit,  there  life  multiplies  to  the  limit 
of  possibility.  The  stress  never  relaxes,  or  if 
it  relaxes  gives  only  a  slioit  res2)ite  for  a  more 
rapid  increase.  Vegeta))le  life  maintains  itself 
jjiimarily  upon  tlie  inorganic,  or,  as  we  com- 
monly say,  the  mineral,  and  in  turn  furnishes 


POPULATION  129 

the  nourisluncnt  uj)on  which  the  animal  king- 
dom is  maintained.  True,  animal  life  may  prey 
upon  itself,  l)ut  its  ultimate  supply  of  nourish- 
ment is  found  in  the  vegetable  kingdom.  In 
this  poAver  of  vegetable  life  to  assimihite  inor- 
ganic matter,  and  in  the  dependence  of  the 
animal  kingdom  upon  the  vegetable,  is  found 
the  ultimate  basis  of  the  classification  into  the 
three  kingdoms.  Vegetable  life  is  distin- 
guished from  animal  life  by  this  power  of 
assimilation  of  inorganic  matter.  All  flesh  is 
indeed  grass,  as  the  horse  in  the  old  song  is 
said  to  have  pleaded  in  excuse  for  biting  his 
master.  While  one  form  of  animal  life  is  the 
prey  of  another,  it  is  only  as  an  intermediate 
form  of  grass.  Although  some  day  the  scien- 
tists may  tell  us  how  to  obtain  from  the  nitro- 
gen in  the  air  and  the  coal  in  the  bin  our 
necessary  food,  it  remains  certain  that  till  then 
the  number  of  liiimau  beings  upon  the  earth 
must  be  limited  by  the  capacity  of  the  earth  to 
bring  forth  its  supplies  of  vegetable  product. 

All  orders  of  brute  life  disclose  the  same  ten- 
dency toward  increase  which  we  have  remarked 
in  the  vesretable  world.  The  limit  is  the  limit 
of  subsistence,  modi  lied  only  by  the  measure 
in  which  animal  life  preys  upon  itself. 


130  ELEMENTARY  ECONOMICS 

Rut  Immauity  is  rarely  the  prey  of  other 
orders,  and  war  and  murder  do  not,  in  modern 
days,  greatly  affect  the  total  of  the  world's 
census.  Famine  is  not  common,  epidemics  are 
mostly  famine  in  disguise,  and  famine  itself 
is  merely  temporary  insufficiency  in  vegetable 
product.  The  world  has  made  an  unexampled 
increase  in  population  during  the  last  two  hun- 
dred years.  Where  is  it  to  stop,  unless  when 
famine  has  become  the  normal  and  usual  state 
of  man  ? 

We  have  not  space  to  examine  closely  into 
the  correctness  of  this  gloomy  Malthusian  fore- 
cast, but  only  to  bring  clearly  into  view  its  dif- 
ferent and  difficult  aspects.  There  is  room  for 
question  how  far  what  is  true  of  vegetable  and 
brute  life  can  be  assumed  to  hold  with  the 
iiuman  race.  If,  as  nations  and  individuals 
j)rosper  increasingly  in  resources,  wealth,  and 
civilization,  they  come  to  bring  into  the  world 
and  to  rear  fewer  and  fewer  children  rather 
than  more,  there  is  need  enough  to  worry,  but 
for  an  altogether  different  reason  from  that  of 
the  Malthusian  foreboding.  What  is  your  ob- 
servation as  to  the  homes  which  contain  the 
most  children?  Do  the  cliildren  indicate  by 
their  number  the  relative    wealth   of   parents, 


POPULATION  131 

and  their  relative  ability  to  furnish  sufficient 
bread  and  butter  for  the  child  appetite?  Is  it 
the  rich  or  the  poor  who  are  prolific? 

,  77.  At  any  rate,  the  law  of  diminishing 
returns  appears  to  apply  chiefly  to  the  agri- 
cultural industries  —  the  industries  of  raw 
material.  How  far,  if  at  all,  it  applies  to  min- 
ing or  to  sea-fisheries  is  not  so  clear.  And  it 
may  happen  that  other  industries  disclose  as 
important  tendencies  toward  increased  produc- 
tiveness. Such,  indeed,  is  the  fact.  While 
the  race  may  find  it  increasingly  harder  to  pro- 
duce its  food,  it  may  have  an  increasingly 
larger  share  of  time  and  capital  to  apply 
thereto.  The  tendency  by  which  this  becomes 
possible  is  called  the  law  of  increasing  returns. 
In  a  sparsely  settled  country  enterprise  will 
commonly  be  found  to  busy  itself  for  the  most 
part  with  the  extractive  industries 

.  The  law  of 

—  the  industries  of  raw  material  —  increasing 
since  these  are  the  industries  which,  "  "°^' 
for  the  time,  offer  the  highest  remunerations 
and  require  the  smallest  outlay  of  capital. 
But  these  are  the  industries  to  which  the  law 
of  diminishing  returns  applies.  As  population 
increases,  this  law  tends  to  become  increasingly 
manifest,  and  the  advantages  of  the  extractive 


132  ELEMENTARY  ECONOMICS 

industries  correspondingly  less.  On  the  other 
hand,  as  population  and  capital  increase,  the 
relative  disadvantages  of  manufacturing  and 
kindred  industries  decrease.  Manufacturing 
industries  soon  gain  a  foothold;  nor  is  this 
entirely  due  to  the  tendency  toward  diminish- 
ing returns  in  extractive  industries;  it  is  in 
part  due,  also,  to  the  tendency  toward  increas- 
ing returns  manifested  in  other  industries. 
It  is  easier  to  make  ten  hats  after  one  pattern 
than  to  make  ten  different  patterns  of  hats. 
This  is  true  even  with  the  methods  of  hand 
industry,  and  more  noticeably  true  in  more 
highly  developed  conditions.  The  larger  the 
market,  the  greater  the  possible  economies  in 
production;  the  more  extended  the  division  of 
labor,  tlie  more  marked  the  advantages  to  be 
derived  from  machinery,  and  the  more  im- 
portant the  economies  possible  in  the  use  of 
capital.  Every  improvement  in  transportation 
which  enables  a  larger  number  of  customers  to 
be  served  from  one  centre  of  supply,  renders 
possible  larger  economies  of  production  at  this 
centre.  An  increase  in  ])opulation  acts  in  a 
parallel  manner.  So  manifest  is  this  tendency 
toward  diminished  proportional  expense  in 
manufacturing  industries,  that  it  is  rarely  over- 


POPULATION  133 

come  by  the  tendency  toward  advancing  ex- 
pense characteristic  of  raw  material,  excepting 
in  cases  Avhere  the  manufacturing  processes 
have  comparatively  small  part  in  the  cost  of 
the  finished  product.  It  follows,  then,  that  if 
food  comes  to  require  more  time  and  effort  to 
get  it,  the  race  will  have  more  time  and  effort 
to  spare  for  that  purpose. 

78.  It  is  not  clear  that,  as  usually  stated,  the 
tendency  toward  increasing  returns  deserves 
to  be  termed  a  law.  The  economies  i^  t^ere  such  a 
possible  from  larger  markets  and  ^^^'^ 
increased  division  of  labor  give  no  indication 
of  being  inexhaustible.  But  the  tendency 
toward  increased  productiveness,  through  the 
development  of  man  in  tastes  and  desires,  as 
well  as  in  the  science  and  technique  of  indus- 
try, is  seemingly  persistent.  On  this  side 
alone  the  law  of  increasing  returns  is  open  to 
no  question. 

SUGGESTIVE  QUESTIONS 

Why  have  cities  grown  so  rapidly  within  the  last  fifty 
years  ? 

What  kinds  of  business  centre  in  cities? 

Do  iniiirovcincnts  in  agricnltnre  tend  chiefly  to  the  in- 
crease of  the  rural  or  of  tiie  urban  pojnilation? 

Is  the  great  growth  of  cities  peculiar  to  the  United 
States? 


134  ELEMENT AUY  ECONOMICS 

Are  tlieiv  proiioitionally  more  or  fewer  people  em- 
ployed in  agric'ultiin"  now  than  fifty  years  ago?      Why? 

Is  this  growth  of  cities  likely  to  continue? 

Wliat  effect  will  improvements  in  transportation  have? 
Improvements  in  machinery? 

What  effect  from  improved  suburban  transportation  on 
the  density  of  cities  ? 

What  effect  may  tlie  electric  motor  as  power  have  on 
the  large-factory  system?    Li  what  degree? 


CHAPTER   XI 

MONEY  GENERALLY 

Why  is  the  value  of  gold  more  stable  than  that  of  coal 
or  iron? 

In  what  sense  is  the  value  of  gold  fixed  by  sacrifices  of 
production  ?    Is  this  a  quick  or  a  slow  process  ? 

In  what  sense  can  money  be  consumed  ? 

What  do  you  intend  to  do  with  the  next  money  you 
get? 

If  a  ten-dollar  bill  were  given  you  on  the  condition 
that  you  should  always  keep  it,  would  it  be  worth  your 
while? 

If  a  hundred-dollar  bill  were  given  you,  would  this  in- 
crease the  total  wealth  of  the  world? 

Would  it  increase  your  wealth  ? 

Suppose  each  man's  cash  were  increased  by  one  hun- 
dred dollars,  would  this  increase  the  wealth  of  the  world  ? 

If  the  money  in  the  possession  of  each  memVier  of 
society  were  doubled,  would  this  increase  the  wealth  of 
any  individual  ? 

Do  you  suppose  that  after  this  doubling,  each  dollar 
would  buy  as  much  as  before? 

If  there  were  no  money,  how  would  you  go  to  work  to 
buy  a  book  ?  Would  the  bookseller  be  willing  to  take 
hay  in  payment? 

Why  would  not  iron  make  good  money?  Brass? 
Wheat?     Cattle?     Hay?     Diamonds?     Tobacco? 

So  far  as  we  now  see,  in  what  important  respects  do 

135 


136  ELEMENTARY  ECONOMICS 

gold  and  silver  differ  in  characteristics  from  the  above- 
uamed  substances? 

Mention  some  uses  for  gold  and  .silver  other  than  as 
money. 

Is  paper  money  useful  otherwise  tiuin  as  money? 

Mention  some  of  the  advantages  of  division  of 
labour. 

79.  It  was  sufficiently  exj_jlHiiied  in  tlie  open- 
ing chapter  that  people  want  money  only  in  the 
sense  that  they  want  the  things  wliich  money 
will  buy.  When  you  sell  something,  your  pur- 
pose does  not  stop  with  getting  the  money. 
That  is  only  a  half-way  stage  toward  getting 
the  things  you  want  in  place  of  what  you  sell. 
That  is  to  say,  the  receipt  of  money  marks  the 
half-way  point  in  an  exchajige  of  goods.  It 
may  of  course  be  true  that  when  you  sell  and 
get  the  money  you  may  not  know  what  you  are 
going  to  buy,  but  if  you  Avere  never  to  buy 
anything,  you  would  have  preferred  to  keep  the 
thing  you  had.  And  so,  as  was  said  in  Sec- 
tion 2,  when  we  speak  of  the  love  of  money  we 
really  have  in  mind  the  love  of  the  things  in 
life  which  are  bought  and  sold.  Money  stands 
only  as  a  general  symbol.  Tn  substance  it  is  a 
power  of  purchase  founded  on  the  fact  of  a 
prior  sale  or  service. 

80.  The  function  of  money  is  analogous  to 


MONEY  GENERALLY  137 

that  of  tools ;  we  do  not  desire  these  for  them- 
selves, but  for  the  things  they  enable  ^^^t  ose  does 
us  to  do;  we  do  not  desire  labor  for  "i°°^y  serve? 
itself,  but  for  the  things  which  it  produces ;  so 
money  is  helpful  because  it  enables  us  easily 
and  conveniently  to  make  exchanges  of  goods. 
Barter  would  be  an  inconvenient  and  imprac- 
ticable way  of  carrying  on  exchanges.  The 
advantages  of  currency  are  best  illustrated  by 
assuming  the  absence  of  it:  suppose  that  A 
desires  to  exchange  hats  for  boots ;  B  has  boots, 
but  refuses  to  trade  with  A,  because  13  himself 
wants,  not  hats,  but  flour.  If  it  turns  out  that 
C,  who  has  coats,  wants  neither  boots  nor  hats 
but  potatoes,  the  three  men  can  do  nothing 
with  each  other.  A  must  hunt  about  until  he 
finds  some  one  who  has  boots  and  wants  hats ; 

B,  some  one  who  has  flour  and  wants  boots ; 

C,  some  one  who  has  potatoes  and  wants  coats. 
And  even  if  A  finds  a  man  having  boots  and 
wanting  hats,  it  may  be  impossible  to  trade 
because  of  a  difference  in  value  between  the 
desired  quantity  of  boots  and  the  desired  quan- 
tity of  hats.  B  and  C  may  meet  with  similar 
difficulties.  Jevons  gives  the  following  illus- 
trations: "Some  years  since,  Mademoiselle 
Zdlie,  a  singer  of  the  Theatre  Lj'rique  at  Paris, 


138  ELEMENT AJiY  ECONOMICS 

made  a  professional  tour  round  the  world,  and 
gave  a  concert  in  the  Society  Islands.  In  ex- 
change for  an  air  from  Norma  and  a  few  other 
songs,  she  was  to  receive  a  third  part  of  the 
receipts.  When  counted,  her  share  was  found 
to  consist  of  three  pigs,  23  turkeys,  44  chickens, 
5000  cocoanuts,  besides  considerable  quantities 
of  bananas,  lemons,  and  oranges.  At  the  Halle 
in  Paris,  as  the  prima  donna  remarked,  this 
amount  of  livestock  and  vegetables  might  have 
brought  4000  francs,  which  would  have  been 
good  remuneration  for  five  songs.  In  the  So- 
ciety Islands,  however,  pieces  of  money  were 
very  scarce,  and,  as  Mademoiselle  could  not 
consume  any  considerable  portion  of  the  re- 
ceipts herself,  it  became  necessary,  in  the  mean- 
time, to  feed  the  pigs  and  poultry  with  the 
fruit.  .  .  .  When  Mi'.  Wallace  was  travelling 
in  the  Malay  Archipelago,  he  seems  to  have 
suffered  ratlicr  fi-om  the  scarcity  than  the  super- 
abundance of  pio visions.  In  his  most  interest- 
ing account  of  his  travels,  lie  tells  us  that  in 
some  of  the  ishuids  where  there  was  no  proper 
currency,  he  could  not  procure  supplies  for 
dinner  without  a  special  bargain,  and  much 
chaffering  upon  each  occasion.  If  a  vendor  of 
fish  or  other  coveted  eatables  did  not  meet  with 


MONEY  GENERALLY  139 

the  sort  of  oxchiuige  desired,  he  would  pass  on, 
and  Mr.  Wallace  and  his  party  had  to  go  with- 
out their  dinner.  It  therefore  became  very 
desirable  to  keep  on  hand  a  supply  of  articles, 
such  as  knives,  pieces  of  cloth,  arrack,  or  sago 
cakes,  to  multiply  the  chance  that  one  or  other 
article  would  suit  the  itinerant  merchant." 

If  trading  were  impossible,  each  of  us  would 
have  to  produce  everything  that  he  consumed; 
we  should  be  Jacks  at  all  trades,  masters  of 
none.  Under  the  opportunities  of  exchange, 
individuals  and  nations  follow  the  lines  of  their 
greatest  ability  and  advantage,  and  exchange 
their  surplus  in  product  for  the  surplus  of 
others.  Thus  the  aggregate  social  product  is 
increased,  and  thereb}^  the  individual  share  — 
the  quotient  —  is  enlarged.  Currency  facili- 
tates this  specialization  of  labor,  commonly 
termed  division  of  labor,  by  facilitating  ex- 
changes. Whenever  we  trade,  it  is  because 
the  thing  that  we  get  we  value  more  highly 
than  the  thing  that  we  part  with.  Money,  or 
more  accurately  currency,  is  a  means  of  trans- 
portation as  truly  as  are  railroads  and  steam- 
ships. 

81.  It  is  important  to  understand  what 
qualities  are  essential  in  any  material  used  for 


140  ELEMENTARY  ECONOMICS 

money.  Primaril}-  the  money  commodity  must 
be  adapted  to  the  needs  of  ordinary  cash  ex- 
Theneceasary  changes:  great  purchasing  power 
quaiitieB.  must  be  Contained  in  small  bulk; 

all  specimens  must  be  of  equal  quality;  divi- 
sion and  roiubination  must  be  possible  without 
loss  of  valiu' ;  the  value  must  not  be  so  great  as 
to  render  tlie  medium  over  minute  for  small 
transactions.  Hay  would  be  too  bulky  and 
too  variable  in  quality;  diamonds  too  valu- 
able, too  variable,  and  practically  not  subject 
to  subdivision  or  recombination.  The  pin 
and  needle  business  would  not  flourish  with 
diamonds  for  money.  Any  material  which 
should  answer  these  requirements  would  serve 
acceptably  as  a  medium  of  exchange,  were  it 
not  for  the  fact  that  exchanges  are  sometimes 
a  long  while  in  completing  themselves.  When 
you  sell  your  hats  you  may  not  Avant  immedi- 
ately to  purchase  tlieir  equivalent;  possibly 
you  do  not  yet  know  Avhat  you  will  purchase, 
or,  if  you  know,  you  are  not  yet  in  want  of  the 
thing.  Thus  the  money  which  you  get  must 
be  something  which  will  not  fall  in  purchasing 
power  by  reason  dI  cliuinical  changes  or  by 
reason  of  fliictualions  in  sup|)ly.  Your  money 
is  a  note  of  doniand  jiayable  by  society  in  market 


HONEY  (iENEHALLY  141 

products.  Wheat  and  hay  would  deteriorate  in 
quality,  and  are  at  one  time  abundant  and  at 
another  time  in  short  supply. 

82.  Again,  while  not  so  clearly,  yet  ulti- 
mately as  truly,  all  cases  of  mortgages,  notes 
and     bonds,     bank     deposits,     and 

Credit  is 

credits  in  general  are  protracted  protracted 
instances  of  exchange.  The  whole-  ^^"^  ^°^®' 
saler  sells  his  groceries  at  three  months'  time. 
Instead  of  receiving  his  pay  innnediately  in 
commodities,  or  in  money  with  whicli  to  buy 
commodities,  the  payment  side  of  the  trade  is 
postponed  for  a  term  of  months.  It  is  im- 
portant, then,  that  the  medium  of  exchange 
shall  not  vary  in  imrchasing  power.  When 
you  lend,  you  really  sell  the  right  to  things; 
when  you  are  rei)aid,  you  get  things  in  return. 
Tlius  a  loan  is,  in  essence,  a  long-time  barter. 
When  3'ou  have  sold  your  hats,  you  allow  X 
to  take  the  money  for  which  they  sell.  It 
is  the  same  as  if  you  had  sold  X  the  hats  or 
the  goods  which  he  buys  with  the  money. 
When  he  pays  you,  he  really  returns  to  you 
your  remuneration  for  the  hats.  If  the  pa}'- 
ment  is  a  fair  one,  the  money  in  which  he  pays 
must  not  have  gained  or  lost  in  its  control  over 
the  means  of  satisfying  Imman  needs.     Thus, 


142  ELEMENTARY  ECONO^^CS 

money  has  to  serve  not  only  as  a  medium  of 
quick  exchanges,  but  as  a  standard  of  deferred 
payments  —  a  means  of  effecting  exchanges  re- 
quiring long  periods  of  time  for  their  com- 
pletion. 

83.  Gold  and  silver  approximate  most  nearly 
of  all  commodities  to  these  requirements.  Nei- 
ther is  greatly  subject  to  rust,  decay,  or  chemical 
action.  Both  are  absolutely  uniform  in  quality 
wherever  found,  and  are  subject,  without  loss 
of  value,  to  division  and  combination.  Both 
comprise  large  value  in  small  bulk.  Not  only 
this,  but  the  annual  product  of  each  is  so  small 
in  proportion  to  the  entire  supply,  that  rapid 
fluctuations  in  value  from  supply  causes  are  im- 
possible. An  amount  of  water  which,  poured 
into  a  washtub,  will  noticeably  change  its  level, 
will  not  greatly  affect  the  depth  of  a  cistern. 

84.  Currency  has,  then,  three  distinct  func- 
tions: that  (1)  of  facilitating  ordinary  ex- 
changes; (2)  of  serving  as  a  measure  of  value 
in  current  business ;  (3)  of  affording  a  standard 
of  deferred  payments  or  a  reservoir  of  savings. 

85.  Now  while  all  agree  that  gold  and  silver 
possess,  in  a  remarkable  degree,  the  qualities 
desirable  in  money,  no  one  will  assert  that 
either  can  be  regarded  as  an  ideal  money.    The 


yfOXEY  GENERALLY  143 

fiiiluie  chiefly  lies  in  this  third  function  —  that 
of  serving  as  a  standard  of  deferred  payments. 
It  is  sometimes  argued  that  if  one  is  there  an  ideal 
has  borrowed  an  ounce  of  gokl,  or  nio^ey' 
a  dollar  of  gold,  or  a  pound  of  gold,  he  ought 
to  be  willing  to  return  an  equal  weight  in  pa}'- 
ment,  just  as  if  he  had  borrowed  a  ton  of  iron 
or  a  barrel  of  flour.  The  iron  or  the  flour 
may  have  changed  in  value  either  by  rise  or 
fall,  but  this  is  a  risk  which  each  party  to  the 
contract  accepts  and  from  which  no  agreement 
to  be  performed  in  the  future  can  be  free.  No 
one  is  wronged ;  the  contract  is  a  fair  one  — 
only  it  is  in  some  measure  speculative.  So  it 
is  urged  with  respect  to  gold;  one  has  borrowed 
a  pound  —  let  him  return  a  pound.  No  one 
can  expect  either  gold  or  silver  to  be  absolutely 
stable  upon  the  market,  relatively  to  other  com- 
modities —  that  is,  to  preserve  an  unfluctuating 
exchange  power.  Everybody  knows  that  some- 
times prices  rise  on  the  average  and  again  they 
fall  —  that  is  to  say,  gold  increases  or  loses  in 
purchasing  power,  and  there  seems  to  be  no  way 
to  help  it.  Gold  is  a  commodity  like  other 
commodities ;  while  it  may  fluctuate  less  than 
others,  it  can  hardly  be  expected  to  be  free 
from    all    fluctuation.       How    is    the    debtor 


144  ELEMENTARY  ECONOMICS 

WToiigL'cl,  if,  wlicn  the  time  of  [)ayinent  eoines, 
the  gokl  w  ill  buy  more  than  when  it  Avas  bor- 
rowed? Suppose  the  creditor  not  to  liave 
loadied,  or  suppose  the  debtor  to  liave  kept  in 
hand  the  very  gold  coins  which  he  borrowed: 
why  should  the  creditor  be  worse  off  for  having 
loaned  or  the  debtor  differently  treated  for  hav- 
ing spent  ?  Would  he  likewise  object  to  carry- 
ing out  a  contract  for  flour  or  iron  ? 

But  an  ideal  money  would  be  a  money  that 
did  not  fluctuate  in  purchasing  power.  Possi- 
bly enougli  there  will  never  be  found  an  ideal 
money;  probably  there  will  not.  It  may  be  that 
there  is  less  of  speculation  in  gold  contracts 
than  in  otlier  contracts,  but  a  perfect  money 
would  not  be  speculative  at  all.  Wlien  we 
buy  wheat,  or  cattle,  or  groceries,  we  commonly 
promise  to  repay  in  money  rather  than  in  kind 
precisely  because  we  want  to  attain  as  nearly  as 
possible  to  an  equality  of  purchasing  power  be- 
tween what  was  received  and  what  is  returned. 
If  the  standard  of  payment  itself  fluctuates, 
this  is  in  itself  an  evil. 

We  must  remembei-  also  that  one  does  not 
boiTow  money  for  tlie  purpose  of  consuming 
it,  but  of  spending  it.  So  when  the  lender  is 
paid   he   uses   the  money  for   reinvestment   or 


MONET  GENERALLY  14') 

for  purchases,  and  not  as  a  couimudity  to  be 
consumed. 

86.    The  fluctuation  of  the  purchasing  power 
of  money  is  so  slight  that  it  does  not  materially 
interfere  with  the  ordinary  day-to-  ^^^  ^^.^  ^^^^^ 
day  business.     It  is   only  in  long- upon  the  silver 
time  contracts  that  the  question  be- 
comes of  great  importance.     As  bearing  upon 
American  political  questions,  it  is  now,  for  ex- 
ample, of  great  interest  to  determine  whether 
gold  has  not  in  tiie  past  twenty  or  twenty-five 
years    consi(k'ialjly    increased    in    purchasing 
power,  and  if  so,  in  what  degree.     The  advo- 
cates of  silver  coinage  make  it  one  ground  of 
attack  upon  the  gold  standaid,  that  under  it 
the  debtor  is  constantly  put  to  loss  to  the  corre- 
sponding advantage  of  the  creditor.      In  sup- 
port of  this  they  point  to  the  general  fall  in 
prices,  which  they  assert  to  have  taken  place 
for  a  number  of  years  and  to  be  still  taking 
place.     The  opponents  of  silver  coinage  meet 
this  attack  in  dilferent  ways.     Some  deny  any 
general  or  average  fall   in  prices.     Will  this 
denial  hold?     Others  admit  the  fall,  but  insist 
that  this   is  not  an  increase  in   the   value  of 
gold,  but  rather  a  decrease  in  the  value  of  other 
commodities,  consequent  upon  the  cheapening 
J- 


146  ELEMENTARY  ECONOMICS 

of  the  methods  of  production.  Do  you  see  what 
they  mean  by  this?     What  is  value ?^ 

87.  We  have  seen  that  the  utility  of  cur- 
rency lies,  for  the  most  part,  in  its  service  in 
The  demand  for  facilitating  exchanges.  There  is, 
money.  then,  as  truly  a  demand  for  money 

as  for  any  other  commodity.  The  demand  for 
a  medium  of  exchange  is  approximately  meas- 
ured by  the  volume  of  exchanges  to  be  made. 

1  The  Silvkr  Qukstion. — From  18131  up  to  1873  a  certain 
weight  of  iiiAd  or  sixteen  times  this  weight  of  silver  was  per- 
mitted unthT  the  United  States  law  to  be  coined  as  a  dollar ; 
any  one  in  possession  of  either  gold  or  silver  was  entitled  free 
of  charge  to  have  tliese  stamped  at  the  mint  as  money,  a  given 
weight  of  silver  making  one-sixteenth  as  much  money  as  a  like 
weight  of  gold.  This  is  what  is  meant  by  free  coinage  of  gold 
and  silver  at  the  ratio  of  16  to  1.  Practically  no  silver  was  ever 
coined  under  this  law,  because  silver  was  too  valuable  relatively 
to  gold.  Evidently  if  silver  were  of  equal  value  with  gold, 
weight  for  weight,  no  one  would  have  it  stamped  as  money  at  a 
ratiii  of  Iti  to  1.  This  would  be  to  stamp  sixteen  gold  dollars 
worth  of  silver  as  worth  one  dollar.  So  if  silver  were  at  the 
ratio  of  15  to  1,  tiiat  is,  worth  one-lifteenth  of  gold,  no  coining 
of  silver  would  l)e  done  at  a  valuation  of  one-sixteenth.  The 
reason  that  no  coinage  of  silver  was  ever  done  under  so-called 
free  coinage  was  that  silver  never  came  to  be  worth  as  little  as 
one-sixteenth  of  gold  till  187.'5,  and  a  little  before  this  point 
was  reached  the  coinage  right  was  withdrawn.  (!old  has  sin(!e 
remained  the  only  metal  freely  coined  for  whoever  may  present 
it.  The  silver  which  has  been  coined  since  that  time,  as  well 
as  that  coined  before,  has  been  bought  by  the  government  and 
made  into  money,  just  as  are  nickel  and  copper,  without  any 
attempt  to  make  the  bullion  v;ilue  e(|nal  to  the  face  value. 

The  ratio  of  silver  to  gold  is  now  about  33  to  1.  It  is  asserted 
by  the  opponents  of  free  silver  that  as  long  as  gold  is  worth 
thirty-three  times  as  much  as  silver,  it  cannot  be  coined  or 
kejit  in  circulation  if  treated  as  only  wnrtli  sixteen  times  as 
mucli,  —  that  silver  would   l)e   I'dincc!    in    immi-iise   ([iiantities, 


MONEY   GENERALLY  147 

We  say  api)roximately,  since  barter  is  always 
possible,  though  ordinarily  not  of  considerable 
volume. 

Clearly  enougli  there  would  be  no  necessity 
for  money  and  no  demand  for  it,  if  each  of  us 
were  to  produce  everythinor  that  he 

^  .  .  Demand  limited 

consumed.       It   is    equally  obvious  by  division  of 
that  division  of  labor  becomes  pos- 
sible  only  on   terms   of   possible   exchange    of 

and  the  purchasing  power  of  the  dollar  lowered  to  somethint; 
like  one-half  what  it  now  is.  They  reason  that  gold  would 
entirely  disappear  from  circulation  as  money,  according  to 
Gresham's  Law. 

Of  the  advocates  of  free  silver,  one  part  believe  that  with 
free  coinage  silver  would  be  so  raised  in  value  by  the  increased 
demand,  and  gold  so  lowered  in  value  by  the  supplies  set  free 
from  use  as  money  and  thrown  upon  the  market,  that  the  ratio 
would  return  to  IG  to  1,  and  the  two  metals  circulate  side  by 
side  as  money.  These  are  the  National  Bimetallists.  Others  of 
these  advocates  admit  that  gold  would  be  excludeil  from  circu- 
lation. These  are  the  Silver  Monometallists.  The  International 
Bimetallists  believe  the  co-operation  of  the  European  nations 
necessary  in  fixing  the  coinage  ratio.  Some  of  these  regard  16 
to  1  as  a  practicable  ratio  :  others  advise  a  higher  ratio. 

The  e.Ktent  of  your  investigations  into  the  silver  question 
must  rest  with  yourself  and  your  teacher;  the  subject  is  too 
large  for  adequate  treatment  in  an  elementary  course.  The 
writer  may,  however,  remark  in  passing  that  he  does  not  con- 
cur in  eitiier  of  the  methods,  set  forth  in  the  text,  of  meeting 
the  silver  argument ;  that  he  believes  that  prices  have  consider- 
ably fallen  in  tlie  last  twenty-five  years;  and  that  this  fall  is 
not  entirely,  or  even  in  larger  part,  to  be  ascribed  to  temporary 
disturbances  in  the  way  of  crisis  or  panic.  He  is  also  disix).sed 
to  admit  that  had  our  government,  in  1.S73,  adhered  to  silver 
as  a  standard  instead  of  gold,  the  silver  standard  would  have 
afforded  a  much  closer  approximation  to  the  ideal  than  has 
gold  :  and  yet  he  does  not  favor  a  return  to  the  free  Ooiuage  of 
silver  in  America  alone  on  any  terms. 


148  ELEMENTARY  ECONOMICS 

})roducts.  It  now  becomes  important  to  note 
that,  po[)ulatioii  and  per  capita  production 
remaining  the  same,  the  volume  of  exchanges 
increases  as  division  of  hibor  is  more  extended; 
tliat  the  aggregate  of  exchanges  is  approxi- 
mately limited  by  the  degree  in  which  division 
of  labor  is  extended;  and  that,  therefore,  the 
advantages  of  exchange  are  exhausted  when  no 
further  economies  in  production  are  promised 
b}''  an  increased  division  of  labor. 

88.  But  population  and  per  capita  pro- 
ductiveness do  not  remain  stationary;  the 
Demand  is  population  of  the  earth  is  rapidly 
increasing.  increasing;  the  development,  also, 
of  the  sciences  and  arts,  and  of  machinery  and 
transportation,  not  only  stimulates  the  division 
of  labor,  the  specialization  of  industry,  but 
increases  the  per  capita  production  of  commodi- 
ties. The  ends  of  the  earth  now  trade  with 
each  other. 

It  ought,  then,  to  be  clear  that  the  need  for 
currency  is  not  proportionate  to  population 
alone,  or  to  wealth,  or  even  to  per  capita  pro- 
ductiveness alone.  It  is  the  volume  of  ex- 
changinjT  to  be  performed  which  furnishes  the 
measure  of  the  demand  foi-  currency.  This  is 
largely  a  matter  of  degree  of  civilization  and 


MONEY  GENERALLY  149 

manner  of  industrial  organization.  In  a  gen- 
eral wa}^  the  per  capita  requirement  for  cur- 
rency is  enlarging.  No  amount  can  be  said  to 
be  required  per  cajjita  simply,  but  only  per 
capita  in  view  of  the  average  productive  effi- 
ciency and  the  established  industrial  methods. 
A  sufficient  per  capita  for  one  countrj^  may  be 
entirely  inadequate  for  another. 

89.  The  value  of  the  currency  unit,  the  dol- 
lar or  franc  or  pound,  is  the  point  of  adjustment 
between  the  demand  for  currency  The  value  of  the 
and  the  supply  of  currency.  To  ^o^ey  unit. 
this  extent,  there  is  nothing  difficult  or  pe- 
culiar in  currency  principles.  If  the  demand 
increases  without  a  correspondingly  increasing 
suppl}',  money  rises,  that  is,  prices  fall.  So, 
increases  in  supply  tend  toward  higher  prices, 
that  is,  toward  depreciation  in  the  purchasing 
power  of  the  money  unit.  If  the  relation 
between  demand  and  supply  changes,  the  value 
of  the  unit  changes  to  correspond.  A  perma- 
nently insufficient  currency  is  therefore  an  im- 
possibility; prices  must  fall  until  at  the  new 
unit  value  the  supply  is  sufficient.  So,  if  the 
currency  is  redundant,  prices  rise  until  the 
redundancy  is  cancelled.  Currency  is  like  a 
gas  which  always  fills  its  receptacle.     A  cur- 


150  ELEMENTARY  ECONOMICS 

rency  out  of  equilibi-ium  is  alwaj-s  in  process 
of  becoming  sufliciciit.  l)Ut.  this  process  of 
becoming  is  rarely  a  comfortable  one,  and  is 
always  attended  with  injustice,  and  commonly 
with  disaster,  as  will  be  more  clearly  seen  in 
our  examination  of  commercial  crises.  These 
fluctuations  in  prices  are  to  be  avoided  if 
possible.  Ill  is  b}^  this  test,  then,  that  the 
normal  supply  of  money  is  best  determined. 
A  supply  sufficient  in  kind  and  quantity  to 
preserve  unchanged  the  purchasing  power  of 
the  dollar  would  be  the  ideal  condition  for 
all  ordinary  cases. 

SUGGESTIVE  QUESTIONS 

Explain  the  analogy  between  exchange  and  transpor- 
tation. 

Outline  inconveniences  of  doing  business  without  a 
medium  of  exchange. 

Show  tliat  a  sale  for  money  is  only  half  of  an  exchange 
of  goods. 

Show  that  a  loan  and  repayment  of  money  really  equal 
an  pxcliaiij^^e  of  cominoditifs. 

What  forces  are  working  to  increase  the  demand  for  a 
circulating  medium? 

As  h.r  as  you  can  see,  is  gold  alone,  or  are  gold  and 
silver  to'4etlier,  increasing  in  volume  with  a  rapidity  cor- 
res]»onding  to  tho  demand? 

If  not,  what  striites  yon  as  a  necessary  result? 


DEMAND  AND  SUPPLY  OF  CURJtENCY     151 

What  will  happen  if  currency  is  in  excess?      Is  insuf- 
ficient? 

Who  arc  injured  when  prices  rise? 
Who,  wiien  prices  fall? 


DEMAND   AND   SUPPLY  OF   CURRENCY 

What  effect  would  falling  prices  have  on  the  produc- 
tion of  gold  ? 

Would  tiiis  result  probablj'  be  sufficient  fully  to  over- 
come the  tendency  toward  a  fall  in  prices? 

What  effect  would  an  increased  output  of  gold  at  the 
mines  have? 

Suppose  the  output  of  this  year  to  be  double  that  of 
last  year ;  would  this  double  prices  ? 

Have  you  any  gold  almut  your  person? 

Is  it  in  the  form  of  money?     In  what  forms? 

What  effect  would  more  plentiful  gold  have  on  its  use 
for  other  than  currency  purposes? 

Would  this  effect  be  sufficient  entirely  to  prevent  a 
rise  in  prices  ? 

90.  In  a  general  way  the  nature  of  the 
demand  for  currency  is  clear  enough.  This 
demand  rests  upon  the  utility  of  currency  in 
permitting  the  division  of  labor,  which  divi- 
sion of  labor  becomes  possible  only  on  condition 
of  possible  exchange  of  products.  With  cur- 
rency, as  with  all  other  commodities,  value 
marks  the  equilibrium  point  between  demand 
and  sujiply.     As  the  business  to  be  transacted 


152  ELEMENTARY  ECONOMICS 

becomes  greater,  the  value  of  currency  will  rise, 
that  is  to  say,  prices  will  fall  —  money  will  buy 
more  —  unless  at  the  same  time  the  supply 
of  currency  expands.  If  the  volume  of  the 
currency  increases,  prices  will  tend  to  rise  — 
that  is  to  sa}',  a  given  amount  of  currency  will 
buy  less  goods. 

91.  As  has  been  said,  the  demand  for  cur- 
rency results  from  the  disposition  to  trade  — 
ThecauBeofthe  ^0  exchange  things.  Now  note  that 
demand  for        this  disposition   to  trade   is  strong 

money.  .  .  .  ° 

just  in  proportion  as  there  are  ad- 
vantages to  be  obtained  thereby.  Both  buyer 
and  seller  believe  themselves  to  be  benefited  in 
every  trade,  else  they  will  not  trade.  The 
quantities,  therefore,  which  we  have  already 
studied  as  buyers'  and  sellers'  quasi-rents 
explain  the  demand  for  currency. 

92.  But  there  are  many  things  owned  by  us 
which  we  would  hardly  sell  at  any  price,  or,  at 

all  events,  at  anything  which  any 

Shonld  currency  . 

be  equal  to  one  would  givc.  You  ordinarily 
buy  things  because  you  want  them 
for  use  and  not  for  re-sale.  Whatever  you  sell, 
you  sell  with  a  view  to  replacing  it  by  another 
thing  which  you  want  more.  When  you  have 
obtained  this  other  thing,  you  commonly  intend 


DEMAND  AND  SUPPLY  OF  CUliliENCY     153 

to  keep  it;  that  is  why  you  bought  it.  Thus, 
only  a  small  part  of  the  wealth  of  the  world 
goes  to  swell  the  demand  for  currency  —  only 
that  part  which  is  being  offered  for  sale  at  any 
particular  moment.  Those  people  evidently 
misunderstand  the  case  who  believe  there  must 
be  as  much  money  as  there  is  wealth, 'or  who 
fancy  that  the  general  welfare  would  be  in- 
creased by  indelinitely  increasing  the  number 
of  dollars. 

93.  We  must  now  briefly  examine  some  of 
the  sources  of  supply  of  currency.  Almost  all 
peoples  use,  in  some  measure,  either  -Whence  comes 
silver  or  gold  as  money.  Where  the  supply? 
this  is  true,  and  where  also  it  is  true,  as  it 
generally  is,  that  anybody  having  the  bullion 
can  have  it  stamped  as  money,  the  value  of  the 
money  will  be  equal  to  the  value  of  the  bullion 
which  it  contains,  and  the  purchasing  po\ver  of 
the  money  will  equal  the  marginal  cost  of  pro- 
duction of  the  bullion.  That  is  to  say,  if  a 
day's  labor  applied  to  gold  digging  will  procure 
more  hats  than  will  a  day's  labor  applied  di- 
rectly to  hat  making,  the  production  of  gold 
will  increase  until  this  advantage  is  cancelled. 
Thus,  any  increase  in  the  purchasing  power  of 
money  will  tend  to  stimulate  the  production  of 


154  ELEMEyTAEY  ECONOMICS 

the  money  metal,  and  after  time  enough  has 
elapsed,  the  value  of  the  money  will  come  to 
equal  the  marginal  cost  of  producing  it. 

94.  Suppose,  however,  that  a  great  increase 
takes  place  in  the  product  of  the  mines,  richer 
Effect  of  in-  mines  having  been  discovered  or 
creased  supply,  better  proccsscs  of  working  them 
devised.  This  will  tend  to  enlarge  the  volume 
of  currency  and  thus  to  raise  prices.  But  not 
all  the  new  product  will  be  made  into  money. 
Not  all  the  gold  already  produced  is  used  as 
money.  Ijicreased  supplies  would  lower  its 
value,  and  gold  would  come  to  be  employed 
for  many  new  uses  as  well  as  in  larger  measure 
for  old  uses.  Only  a  part  of  the  new  product 
would  go  to  expand  the  volume  of  currency. 

In  the  next  chapter  we  shall  examine  the 
ways  in  which  paper  and  credit  come,  for  some 
purposes,  to  take  the  place  of  money.  We 
are,  however,  already  prepared  to  note  one  im- 
portant difference  between  a  currency  having  a 
real  commodity  value  —  a  currency  marketable 
for  ordinary  use  and  consumption  —  and  a  cur- 
rency made,  for  example,  of  paper,  and  having 
no  value,  or  an  inappreciable  value,  for  other 
than  currency  uses.  A  considerable  increase 
ill  tlic  supply  of  gold  would  not  considerably 


DEMAND  AND  SUPPLY  OF  CURRENCY      155 

affect  the  amount  of  gold  used  as  money,  if 
the  ordinary  market  demand  were  capable  with- 
out a  great  change  in  value  of  absorbing  the 
larger  portion  of  the  new  suppl}^  At  any 
rate,  to  increase  the  world's  supply  of  gold  by 
an  amount  equal  to  the  volume  used  as  money 
would  not  be  to  double  the  amount  used  as 
money.  Rut  with  paper  the  case  is  different. 
Paper  put  out  as  money  will  remain  as  money 
unless  it  gets  paid  back  to  the  government  or 
becomes  so  worthless  as  to  be  used  for  rags. 
The  supply  adjusts  itself  to  the  demand  only 
by  a  fall  in  purchasing  power  —  a  rise  in  prices 
—  proportional  to  the  increase  in  volume. 

DIFFERENT    KINDS    OF   CURRENCY 

The  following  is  the  report  of  a  typical  coun- 
try bank  in  the  fall  of  1894.  A  careful  analysis 
should  be  made  of  this  report.  Notice  that  the 
bank  has,  of  capital,  snrplus  funds,  and  undi- 
vided profits,  about  $76,000  invested,  and  has 
with  it  upon  deposit  $255,887.94  :  — 


156 


EL  EM  EX  TA  R  Y  ECON  OMICS 


FIRST    XATIOXAL    BAXK 
Charles  City  (Iowa),  1S94 


12,500  00 
32,713  04 


in 850,000  00 

Surplus  fund     .     .       10,000  00 


Loans   and    dis-  i  Capital  stock  paid 

counts   ....  8237,600  40 

Overdrafts    ...  385  36 

U.  S.  Bonds  to  se- 
cure  circulation 

Due  from  other  Na- 
tional Banks  32,713  04    Undivided    profits 

Furniture  and  fixt-  |      less  current  ex- 

ures 1,000  00  ]      penses  and  taxes 

Due    from    State  paid 16,53370 

Banks  and  bank- 
ers      

Due  from  approved 
reserve  agents    . 

Checks  and  other 
cash  items      .     . 

Bills  of  other  Na- 
tional Banks .     . 

Fractional  cur- 
rency    .... 

Specie 

I>e?al  tender  notes 

Redemption  fund 
with  U.  S.  Treas- 
urer   


782  52    National  Bank 
;      Notes    outstand- 
24,888  90  !      ing 5,760  00 

i 
l,(;i9  79  i  Individual  deposits     255,887  94 

7,972  00 

93  63 

10,0;5.j  .50 

8,000  00 

562  50 


Total 


8338,181  64 


Total 8338,181  64 


QUESTIONS 

Show  what  has  becoTne  of  thi.s  money. 

How  niiich  in  notes  or  overdrafts  is  due  the  bank  from 
borrowers  ? 

How  much  has  been  loaned  to  other  bank.s  by  way  of 
dep»o5it3  ? 


UEMAND  AND  SUPPLY  OF  CURRENCY     157 

How  inuoli  may  tliis  bank  be  called  upon  to  pay  on 
any  day  ? 

What  are  its  immediate  resources  for  this  purpose? 

How  much  cash  has  it  on  hand? 

How  much  of  this  is  gold  or  silver  ? 

How  much  of  its  resources  are  in  the  form  of  demand 
rights  against  other  banks? 

What  has  the  bank,  in  fact,  to  show  for  this  depositors' 
money  ? 

How  are  national  bank  notes  secured? 

In  what  payable  ? 

Get  one  of  these  notes  and  see  what  the  bank  agrees 
to  do. 

Is  it  probable  that  all  depositors  will  call  for  their 
monej'  at  one  time? 

What  would  happen  if  they  did? 

Would  there  be  much  profit  in  banking  if,  for  eveiy 
dollar  left  at  the  bank,  the  bank  must  keep  a  dollar  on 
hand? 


95.    Suppose  that  D  gives  to  L  an  order  upon 
you  for  fifty  dollars.      L   pays   a  grocery  bill 

with   this,    and   the   grocer    brinfrs  „ 

^  ~     How  credit 

it   to   you   and   discharges   a  claim  serves  as  cur- 

which   you    hold    against    liim    for 

that  amount;  you  tear  up  the  order.     A  large 

amount   of   business    has   been    transacted    by 

the  use  of  this  order  and  without  the  need  of 

money.     Credit  has  served  as  a  substitute  for 

money. 

So  when  you  pay  a  debt  by  a  check  upon  the 


lo8  ELEMENTARY   ECONOMICS 

bank,  this  check  may  pass  through  several 
liaiuls,  doing  Avork  similar  to  that  of  money, 
permitting  exchanges,  making  payments,  etc., 
and  finally,  when  the  check  comes  to  the  bank, 
it  is  merely  charged  up  to  you  and  credited  to 
the  person  who  deposits  it.  No  money  need 
have  been  used  in  the  entire  series  of  trans- 
actions. 

We  thus  see  that  the  circulating  medium  is 
composed  of  different  elements.  The  student 
ma}'  have  been  puzzled  by  the  use  in  one  place 
of  the  term  "money"  and  in  another  of  the 
term  "currency."  Money  and  currency  are  not 
equivalent  terms.  Currency  includes  all  forms 
of  exchange  media;  money  is  but  one  form  of 
currency.  We  speak  of  coin,  greenbacks,  and 
the  like,  as  money.  But  the  larger  part  of 
business  is  transacted  through  credit  substi- 
tutes for  these,  —  through  drafts,  bills  of  ex- 
change, negotiable  notes,  and  the  check  and 
book-keeping  devices  of  deposit  banking.  In 
their  origin,  it  is  probably  true  that  all  cur- 
lencies  were  composed  solely  of  commodities, 
with  a  well-defined  utility  for  other  than  cur- 
rency purposes.  But  with  the  development  of 
society,  the  use  of  substitutes  has  increased. 
The  bank  (aistonicr  thinks  of  liis  deposit  in  the 


DEMAND  AND  SUPPLY  OF  CUIUiENCY      159 

bank  as  nioiu'v,  and  it  really  serves  him  all 
the  purposes  of  money.  The  right  to  have  the 
money  when  desired  is  as  good  as  the  actual 
possession  of  it,  and  is  as  readily  and  as  ser- 
viceably  transferred.  When  the  bank  customer 
wants  to  pay  a  bill,  he  draws  a  check  or  order 
against  his  account.  The  receiver  of  the  check 
places  it  in  the  bank  and  gets  credit  for  it,  the 
drawer  is  charged  with  it,  and  the  transaction  is 
completed,  no  money  having  been  transferred. 
These  deposit  accounts  in  banks  commonly 
aggregate  several  times  the  cash  resources  of 
the  banks.  These  cash  resources  also  are 
largely  made  up  of  deposit  claims  against 
other  banks.  London,  for  example,  is  the 
banking  centre  not  only  for  a  large  part  of 
the  business  of  England,  but  also  for  a  con- 
siderable portion  of  the  business  of  the  world. 
International  interest  payments  and  the  trans- 
actions of  foreign  exchange  are  effected  by 
drafts  on  London.  Balances  between  Lon- 
don banks  are  settled,  not  in  money,  but  in 
checks  and  book-keeping  at  the  Bank  of  Eng- 
land. It  results  that  the  enormous  business 
of  the  London  banks,  ao-crreo-atine:  hundreds  of 
millions  of  dollais  daily,  requires  the  transfer 
of  only  a    fraction   of  one  pcM'  ci-nt   in   money. 


160  ELEMENTARY  ECONOMICS 

It  becomes  intelligible  that  the  English  people 
are  able  to  handle  their  business  affairs  upon 
less  than  twenty  dollars  per  capita  of  money, 
while  Francs  employs  over  forty  dollars  per 
capita,  though  doing  a  much  smaller  per  capita 
of  business.  One  rarely  comes  across  a  bank 
in  French  cities  —  deposit  banking  is  scarcely 
practised,  checks  unknown  in  ordinary  affairs, 
and  even  the  Paris  clearing-house,  the  only 
one  in  France,  is  scantily  patronized.  Work- 
ing people  keep  their  salaries  in  their  pockets ; 
peasants  their  savings  in  their  stockings;  and 
each  merchant  serves  as  his  own  banker. 

96.  Not  only  have  business  men  invented 
methods  of  convenience  in  doing  business 
Government  wliich  in  effect  are  creations  of  cur- 
issues,  rency,  but  governments  and  bank- 
ing institutions  have  made  large  issues  of 
forms  of  money  known  as  bills,  bank-notes, 
"greenbacks,"  and  the  like.  We  have  seen 
that  all  these  substitute  forms  of  currency  per- 
form the  functions  of  l^nllion  currency  (coin) 
in  effecting  exchanges,  and  therefore  operate 
in  this  regard  as  would  an  actual  increase  in 
the  supply  of  the  commodity  used  as  money. 


G  RE  SHAM'S  LAW  lt)l 


SUGGESTIVE  QUESTIONS 

When  a  merchant  deposits  in  the  bank,  say  ^1000,  is 
all  of  this  usnally  in  actual  money?     In  what  else? 

Suppose,  you  liave  iglOOO  to  your  credit  —  on  deposit, 
as  it  is  callfil  —  at  the  Imnk,  is  this  moncv  really  there? 

How  much  is  probably  at  the  Ijank  U>  auswc-r  for  your 
$1000  ? 

If  you  desired  to  pay  a  bill,  would  you  probably  draw 
money  or  make  a  check  ? 

How  coukl  the  merchant  make  the  check  serve  him  as 
money  without  ever  seeing  the  real  money  for  it  ? 

What  is  a  clearing-house?  See  a  banker  and  ask  him 
to  explain  it  to  you. 

GRESHAM'S  LAW 
The  Cheaper  Money  Drives  out  the  Dearer 

As  aluminum  has  become  cheaper,  what  new  uses 
have  been  found  for  it? 

What  effect  would  a  decrease  in  the  exchange  power 
of  gold  have  on  its  use  as  plate  and  gilding  and  orna- 
ment? 

When  a  piece  of  gold  in  your  possession  will  make 
for  you  a  gold  watch  case  or  will  buy  you  a  second-grade 
bicycle,  we  will  suppose  that  you  choose  the  watch  case ; 
now  suppose  prices  change  so  that  the  gold  will  command 
a  first-grade  wheel  —  what  change  would  you  probably 
make  in  your  application  of  the  gold  ? 

97.  Any  expansion  of  tlie  currency,  whether 
by  credit  or  otherwise,  tends  to  lower  the  pur- 
chasing   power    of    eacli    money    unit    (dollar. 


162  ELEMENTARY  ECONOMICS 

franc,  pound,  etc.).     This  fall  in  the  exchange 

power  of   the   money  commodity,   for  example 

gold    or   silver,  makes    it    possible 

Poor  money  ~  ■,  t  i  t     i 

drives  ont         for   the    Commodity   to    be    appiiea 
^°°^'  to    many   new   uses.     So,  as  paper 

money  or  credit  comes  to  circulate  as  cur- 
rency, there  is  some  tendency  toward  disap- 
pearance from  money  uses  of  that  i)art  of  the 
currency  which  can  be  used  for  something 
else.  The  gold  flows  out  into  other  chan- 
nels. So  we  say,  in  the  terms  of  what  is 
called  Gresham's  law,  that  the  cheaper  money 
drives  out  the  dearer.  But  do  not  allow  this 
expression  to  mislead  you.  The  expansion 
of  currency  causes  a  fall  in  the  purchasing 
power  of  the  unit.  This  fall  releases  the 
gold  or  silver  to  the  stronger  pull  of  the 
outside  market  —  the  market  of  art  and  in- 
dustry. The  dear  money  is  not  elbowed  or 
pushed  out,  but  rather  induced  or  beckoned 
out.  Cheaper  money  relaxes  the  currency  de- 
mand, and  thereby  releases,  in  some  measure, 
the  currency  which  is  the  object  of  other  kinds 
of  demand.  In  truth,  expansion  by  cheaper 
currency  does  not  differ  from  expansion  through 
an  increased  supply  of  the  original  currency 
commodity,    except  -that,    in    Hie    case    of    an 


GRESHAM'S  LAW  163 

addition  of  clieii[)  money,  all  the  outflow  is 
confined  to  the  dearer  money,  the  cheaper 
continuing  in  its  currency  use. 

98.  What  we  have  already  said  as  to  Gresli- 
am's  law  applies  in  any  society,  and  would  be 
true  were   the  society  in   question  „     ,     ,   , 

•^  ^  Greaham's  law 

the    only    one    in    the     world.         But   in  international 

commonly  these  domestic  tendencies 
are  not  of  very  great  importance.  Similar 
tendencies  are,  however,  to  be  remarked  in 
international  trade.  In  domestic  movements 
of  currency,  Gresham's  law  means  that  inflation 
(expansion  or  increase)  makes  some  forms  of 
currenc}^  more  desirable  outside  of  the  cur- 
rency use  than  inside  —  more  valuable  for  use 
than  for  exchanfje.  In  international  affairs 
Gresham's  law  means  that  expansion  makes 
some  forms  of  currency  more  desirable  outside 
of  the  country  than  inside  —  more  desirable 
for  buying  abroad  than  for  buying  at  home. 

Suppose,  for  example,  that  b}'^  some  form  of 
domestic  expansion  —  for  exam})le,  by  paper 
money  or  by  increased  use  of  credit  —  prices 
have  been  raised  ten  per  cent;  that  which  was 
originally  90  here  and  100  abroad  and  was  ex- 
ported, now  rising  to  99  here  ceases  to  be 
exported;    that  which  was  90  abroad  and  100 


164  ELEMENTARY  ECONOMICS 

here  and  was  imported,  now  rising  to  110 
here,  is  still  more  largely  imported.  That 
part  of  our  currency  which  stands  best  abroad, 
and  upon  which  therefore  the  pull  of  the  for- 
eign market  is  strongest,  will  be  exported  to 
pay  the  mone}'  balance  which  we  come  to  owe 
abroad.  This  tendency  toward  the  export  of 
money  will  continue  till  we  have  cancelled 
the  difference  between  domestic  and  foreign 
prices.  While  the  export  of  our  money  tends 
to  bring  our  prices  down,  the  import  to  for- 
eign countries  tends  to  raise  the  prices  there. 
99.  Let  it  be  suppos'ed,  in  further  illustra- 
tion of  international  currency  movements,  that 
the  money  circulation  of  the  United  States  is 
one  billion  five  hundred  millions,  and  that  of 
Europe  ten  billions;  suppose,  also,  our  billion 
and  a  lialf  to  be  all  gold.  If  now  an  attempt 
be  made  to  double  our  money  volume  by  the 
issue  of  a  billion  and  a  lialf  of  paper  dollars, 
it  is  evident  that  our  prices  will  tend  to  rise. 
The  result  must  be  an  increase  in  imports  and 
a  decrease  in  exports.  As  long  as  we  have  the 
gold  to  send,  our  unfavorable  trade  l)alance 
will  be  settled  in  exported  gold,  and  prices 
will  tend  to  rise  abroad.  When  interna- 
tional prices  have  reached  their  new  level,  the 


GRESFIAM'S  LAW  165 

case  will  stand  as  follows:  the  asfefreg-ate  cur- 
rency  of  Europe  and  iViiicrica  will  liave 
increased  from  !i5ll,500,000,000  to  $13,000,- 
000,000,  and  a  general  advance  in  i)i'ices  of  IZfo 
will  therefore  have  taken  place.  Our  currency 
must,  then,  have  increased  from  -"tfl, 500,000,000 
to  (•'5(1,500,000,000  X  1.13)  .$1,695,000,000,— 
>!(l<r),000,000  of  this  being  gold,  and  tlu>  re- 
maindei-  of  onr  gold  having  left  to  swell  the 
circulation  of  Europ(\ 

An  issue  of  two  billions  of  paper  by  us 
would  give  the  following  outcome:  all  our 
gold  would  have  departed  for  Europe;  rise  of 
prices  in  Europe  of  15%  ;  onr  need  for  money 
on  this  new  gold  basis,  $1,725,000,000;  our 
actual  circulation,  $2,000,000,000;  gold  at  pre- 
mium of  15.9%;  rise  in  prices  as  reckoned  in 
paper  mone}^  33%. 

100.  Bearing  these  facts  in  mind,  the  futility 
and  danger  of  any  local  effort  toward  an  in- 
creased currency  becomes  evident.  Attempts  of 
this  sort  can  attain  their  purpose  onl}^  in  propor- 
tion as  the  currency  of  the  world  is  expanded, 
unless  the  currency  of  the  nation  attempting 
expansion  wholly  loses  its  commodity  elements 
—  e.^.  gold  —  and  becomes  a  non-international 
currency  —  c.^/.  fiat  (irredeemable  [)aper). 


166  ELEMENTARY  ECONOMICS 


SUGGESTIVE  QUESTIONS 

Is  it  possible  permanently  to  have  exports  exceed  im- 
ports ? 

What  effect  on  the  volume  of  money  abroad?  On  the 
volume  of  money  here? 

What  effect  on  prices  aliroad?     On  prices  here? 

What  effect  on  further  exports? 

What  ultimate  effect  on  exports  must  follow  from  the 
prohibition  of  imports? 

Is  it  worth  while  to  increase  the  domestic  currency 
and  to  expand  prices  by  restricting  purchases,  unless 
we  expect  later  to  increase  our  purchases? 

What  has  this  to  do  with  protective  tariffs? 

Is  it  true  of  nations  that  international  division  of 
labor  is  possible  only  on  condition  of  possible  exchange 
of  products  ? 

Is  division  of  l^bor  well  for  people  inside  the  same 
country  ? 

Is  international  division  of  labor  well? 

Do  you  see  any  bearing  of  Gresham's  law  upon  the 
silver  question  ? 

In  a  commodity  currency,  where  does  the  supply  come 
from? 

What  would  measure  value  if  the  legislature  fixed  the 
supply,  for  example  in  paper  ? 

Would  paper  or  commodity  currency  best  adapt  itself 
to  demand? 

Would  an  increased  use  of  silver  as  money  set  free 
any  gold  for  commodity  uses?     Why? 

How  would  the  value  of  gold  as  commodity  be  af- 
fected ? 

How    would     its     purchasing    power    as    money    be 

affected  ? 


COMMERCIAL   CRISES  167 

Would  its  purchasing  powor  as  money  fall,  unless  its 
value  as  coiuinodity  tell  also?     Why? 

Is  the  purchasing  power  of  gold  as  money  given  to  it 
hy  the  fact  that  it  is  stamped  by  the  government? 

Does  its  purchasing-  power  -result  in  any  degree  from 
the  fact  that  it  is  used  as  money? 

May  its  use  as  money  be  effective  in  this  regard, 
though  the  government  stamp  is  not  effective? 

Is  it  true  that  the  stamped  coin  is  worth  exactly  the 
value  of  its  contained  bullion? 

If  the  stamp  does  no  more  than  certify  the  weight  and 
fineness,  who  pays  for  the  stamping? 

What  is  seigniorage? 

COMMERCIAL  CRISES 

What  kind  of  years  generally  precede  panic  times,  as 
to  (rr)  prices,  (/>)  wages,  (r)  speculations? 

What  kind  as  to  the  creation  of  (a)  capital,  (6)  the 
building  of  houses,  (c)  of  factories,  (d)  of  railroads? 

Have  the  people  been  mostly  at  work,  or  have  large 
numbers  been  unemployed? 

Has  the  social  product  been  large? 

How  about  savings  ? 

If  prices  have  been  high  and  business  large,  what 
must  have  been  true  as  to  the  volume  of  currency  V 

Has  the  volume  of  money  increased? 

Are  flush  times  times  of  relatively  large  production  of 
the  precious  metals  or  times  of  unusually  marked  tendency 
toward  the  coinage  of  accumulated  stocks  of  precious 
metals? 

How  did  those  hii;h  prices  become  possible? 

101.  AVo  li;iv(^  already  seen  that  a  larc^e 
share  of  modem  business  is  transacted  throucrh 


168  ELEMENTARY  ECONOMICS 

the  use  not  of  money,  but  of  substitutes  for 
money  —  through    different  forms   of   circulat- 

The  great  "^o     Credit,     Or     through    the    book- 

credit  system,  keeping  devices  of  deposit  banks 
and  clearing-houses.  In  local  trade,  checks 
supply  a  lai'ge  part  of  the  currency  demand. 
Drafts  and  bills  are  the  media  of  debt  payment, 
not  only  between  city  and  city,  but  between 
country  and  country.  Only  balances  are  paid 
in  money,  and  the  clearing-house  greatly  re- 
duces this  latter  employment.  Bank  Ijalances 
in  London  are  paid  by  book-keeping  in  the  Bank 
of  England,  It  is  evident  that  all  exchanges 
completed  without  the  use  of  money  stand 
with  relation  to  the  demand  for  money  as  if 
they  had  not  taken  place.  Not  c)nly  this,  but 
more  rapid  transportation  has  shortened  the 
time  of  employment  of  money  in  the  jjaj^ment 
of  balances.  These  influences  together  have 
worked  powerfully  to  lessen,  if  not  to  cancel, 
the  tendency  toward  appreciation  in  the  cur- 
rency unit,  due  to  enlarged  demand  for  ex- 
change media.  The  customer  pays  the  i-etail 
trader  by  check.  'J'lie  retailer  pays  the  whole- 
saler by  draft,  llailways  and  telegraphs  have 
almost  cancelled  the  element  of  distance  in 
book-keeping   and  ])a3'ment    relations  l^etween 


COMMERCIAL    CRISES  169 

communities.      Negotiable   notes,   bills  of  ex- 
change,  open  accounts  of  debt  and  credit,  all 
contribute     to    the    economy    of    money.       In 
England    and    America   the   credit  system    is 
widespread,    thoroughly   organized,    delicately 
adjusted,    swift,    effective,    and    complicated. 
It     is     carefully    protected    by    guaranty    or- 
ganizations,    by    great    trust     companies,     by 
all-powerful    and    all-inquisitorial    mercantile 
reporting    and    collection    agencies.       In    ad- 
dition   to    these,     there    are    the    investment 
companies,   the  savings  banks,   and  the  insur- 
ance  companies,    all  of   which  are    intermedi- 
aries  for    the    gathering    and   distributing    of 
credit.     Their  business  is  to  guard  the  credit 
system  with  extreme   watchfulness   in  protec- 
tion of  their  legal  guaranties.     Thus  the  credit 
system,  resting  upon  infinitely  intricate  rela- 
tions  between  manufacturers,    jobbers,   whole- 
salers, retailers,  and  consumers,  has  for  super- 
structure   the    many-storied   fabric    of    deposit 
and  discount  banking,  of  stock  investment  and 
collateral  borrowing,  of  savings  and  insurance 
investment,  and  of  trust  and  mortgage  guar- 
anty  companies.      There  are  even   companies 
to  guarantee  the  validity  of  titles  and  the  good 
faith  of  employees. 


170  ELEMENTARY  ECONOMICS 

102.  Not  all  of  these  credit  devices  serve  as 
economies  in  the  use  of  money.  Where  items 
in  open  account  offset  each  other,  the  economy 
is  manifest.  Where  credit  circulates,  the  econ- 
omy is  manifest.  But  the  mere  granting  of 
credit,  awaiting  a  later  settlement,  does  not 
lessen,  in  the  outcome,  the  demand  for  money, 
but  merely  postpones  it.  Credit  must  be  used 
by  transfer  in  payment  of  indebtedness  before 
it  works  as  substitute  for  money.  Neverthe- 
less, this  non-currency  element  in  credit  is 
none  the  less  credit,  and  in  the  making  up  of 
disaster  is  as  important  as  any  other.  For, 
carefully  inspected  and  supported  as  is  this 
credit  system,  it  is  the  sheerest  card-house. 
Its  contrivances  for  watchfulness  and  safety 
arc  its  most  shifty  and  unstable  features.  No 
fire-trap  could  be  more  skilfully  planned  for 
purposes  of  destruction,  with  heavy  supports 
and  girders  of  spontaneously  combustible 
timber. 

103.  The  period  preceding  a  financial  crisis 
is  commonly  a  period  of  seemingly  great  pros- 
perity.    There  is  a  popular  impres- 

Ante-panic  . 

years  are  pros-  sion  that  such  ])rosperity  is  a  mere 

seeming,   and   I  hid    ))anic  is  in  the 

nature   of  a  necessary  collapse.     Jt  would  be 


COMMERCIAL    CRISES  171 

going  too  far  to  claim  that  no  bubbles  are 
formed  in  the  course  of  business  expansion, 
or  that  these  bubbles  are  not  sources  of  finan- 
cial clanger;  but,  speaking  generally,  the  pop- 
ular impression  is  a  mistaken  one.  The  years 
preceding  a  panic  constitute  a  period  of  great 
industrial  activity  and  of  great  productiveness. 
Wage-earners  have  been  well  employed;  the 
industries  of  distribution  have  been  in  smooth 
and  successful  operation.  At  the  close  of  the 
period  it  will  be  found  that  the  Avage-earning 
classes  have  rarely  been  as  well  housed,  as  well 
clothed,  or  as  well  fed.  They  are  exception- 
ally well  supplied  with  the  smaller  conven- 
iences and  comforts  of  life.  Measured  by 
their  own  standard,  the  laborers  are  prosperous 
in  pleasant  homes  and  large  personal  belong- 
ings. In  the  aggregate,  they  represent  a  large 
total  of  material  wealth.  It  will  be  found  true 
of  the  farmer  that  his  farm  was  never  under 
better  cultivation,  or  his  herds  larger,  his 
buildings  more  substantial  or  in.  better  repair, 
or  his  home  better  furnished.  Likewise  of  the 
manufacturer  and  the  merchant;  never  were 
there  larfjer  stocks  or  more  warehouses  burst- 
ing  with  merchandise.  Never  were  factories 
daily  pouring  forth  more  goods.     Turning  to 


172  ELEMENTARY  ECONOMICS 

general  conditions,  it  will  be  found  that  these 
prosperous  years  have  rebuilt  cities  in  brick, 
interlaced  states  and  even  continents  with 
railroads,  dotted  the  prairies  with  farmhouses, 
beautified  them  with  fields  of  grain,  and 
covered  them  with  herds.  The  period  has 
Ijeen  one  of  Avidespread  plenty,  of  remarkable 
industrial  activity  and  efficiency,  of  boundless 
energy  and  hope.  It  is  strange,  it  is  even 
impossible,  that  extensive  building  operations 
should,  in  themselves,  result  in  houseless  ex- 
posure; that  overflowing  granaries  and  fatten- 
ing herds  should  foster  hunger,  or  that  ware- 
houses of  cloths  should  be  the  sufficient  cause 
of  nakedness.  It  is  doubtless  true  that  these 
meshes  of  railroads,  these  cities  of  brick  and 
iron,  these  immense  factories  and  fattening 
lierds,  are  largely  the  outcome  of  reckless  hope 
and  borrowed  capital ;  yet  it  all  counts  in  the 
world  as  wealth;  it  is  here.  Tliat  the  capital 
is  borrowed  chips  nothing  from  this  fact. 

104.  Tlie  elements  of  danger  are  not  to  be 
found  in  the  industrial  situation,  which  was 
Where  is  the  I'^ssibly  ucvcr  before  so  prosperous 
difficulty?  i,i  thorough  efficiency  and  organiza- 
tion.    The  difficulty  is  financial. 

We  have  seen  that  the  volume  of  exchanges 


COMMEliClAL   CRISES  173 

is  the  measure  of  the  demand  for  currency; 
double  the  volume  of  currency  without  increas- 
ing tlie  number  of  exchanges,  and  you  double 
prices.  To  halve  the  currency  is  to  lower 
prices  a[)proximately  in  the  same  ratio.  These 
propositions  are  unquestionable;  they  hardly 
reach  the  dignity  of  principles  — they  are  mere 
mathematics.  Yet,  strangely  enough,  as  ap- 
plied to  the  facts  of  industry  they  are  seemingly 
untrue.  Prices  almost  uniformly  rise  with  in- 
creasing activity  in  business,  and  fall  with 
failing  business.  This  is  apparently  to  say 
that  the  value  of  currency  falls  with  an  in- 
creased demand,  and  rises  with  a  failure  of 
demand. 

The  explanation  is  found  in  the  fact  that, 
with  expanding  business,  the  currency  also 
expands,  and,  commonly,  in  a  degree  more  than 
proportionate  to  the  demand  for  it.  This  in- 
crease takes  place  not  ordinarily  in  the  legal 
tender  element,  but  in  the  credit  element. 
Reviving  credit  always  characterizes  reviving 
business.  Under  existing  systems,  credit  fur- 
nishes for  currency  the  only  element  of  ready 
adaptability.  It  furnishes,  for  ordinary  con- 
ditions, the  guaranty  of  steady  market  prices. 
It  avoids  an   enormous  application  of  human 


174  ELEMENTARY  ECONOMICS 

energies  to  the  production  of  commodity  cur- 
rency. Without  it,  great  expanding  business 
operations  would  carry  with  them  their  own 
veto  in  falling  prices  and  vanishing  profits. 

But  these  advantages  are  purchased  iit  the 
risk  of  enormous  dangers.  The  connnercial 
crisis  marks  the  period  when  money  takes  on 
abnormal  scarcity  and  abnormal  value  from  the 
fact  that  money  substitutes  —  credit  currency 
—  contract  in  volume.  The  very  height  of  the 
credit  fabric  measures  the  disaster  of  its  fall. 
It  is  at  the  full  tide  of  prosperity  tliat  the 
danger  is.  greatest.  If,  then,  for  any  reason, 
whether  of  extravagance  at  some  point,  or  of 
over-production  in  some  industries,  or  of  fail- 
ure of  harvests  in  some  districts,  or  of  over- 
speculation,  or  even  of  business  prosperity 
carried  to  the  point  of  over-stringency  in  the 
loan  market,  there  sets  in  a  contraction  of 
credit,  trouble  begins.  The  debtor  can  pay 
only  ])y  calling  in  turn  upon  his  debtor.  The 
pressure  for  payment  increases  in  almost  geo- 
metrical progression.  Not  onl}^  does  credit 
largely  disaj>pear  from  circulation,  but  the 
burden  of  liquidating  existing  inde])tedness  is 
thrown  upon  the  legal  tendei'  and  tlie  un- 
questioned  elements  of  the  currency.     Panic- 


COMMERCIAL    CUISES  175 

stricken      marketings     of     commodities,     and 
panic-stricken    or   speculative    withdrawals    of 
money  from  the  channels  of   business    further 
complicate    the   situation.     Endless   ruin    and 
disaster  follow;  [)rices  tumble;   this    is   panic, 
when  even  the  rich  seem  poor,  when  business  is 
stagnant,  exchanges  are  suspended,  laborers  are 
unemployed  and  in  want.     Immediately  preced- 
ing it   were  the  headlong  rush   and   exultant 
activity  of  prosperity, — when   all    men    were 
hard  at  work,  though  doubtless  over-confident, 
and  possibly  over- venturesome.     And  noAv  fol- 
lows the  destruction  of  wealth.      In  the  course 
of  ample  credit,  things  had  arranged  themselves 
in  the  hands  of  those  who  knew  best  how  to 
use  them.      Now  ensues  an  enforced  redistri- 
bution.     In  the  outcome  one  man  finds  him- 
self with  two  houses,   and  can  use  but  one; 
or  with  two  horses,   and  needs  but  one;    and 
with  endless  steam  engines,  and  trumpery,  and 
stocks  in  trade  of  which  he  wants  nothing.    He 
can  only  let  the  property  groAV  old  or  rot  or 
rust.      The  wheels  of  the  factory  stand  still; 
industry  has  dropped  its  tools:    and  all  this, 
not  because  there  was  too  little  wealth,  or  too 
much,  but  because  what  there  was,  was  badly 
arranged  to  withstand  a  flurry  in  credit. 


176  ELEMENTARY  ECONMIICS 

105.    It  is  clear  enough  that  panic  is  an  ebb 
in  credit,  and  tliat  in  proportion  as  the  inter- 
mixture   of    credit    in    currency    is 

Advantages,  _  _  '' 

disadvantages,    large,  is  the  disaster  great.     What- 

And  r6 1116 Q IBS 

ever  may  be  the  ameliorations  possi- 
ble, the  gravity  of  the  case  is  not  to  be  ques- 
tioned. Here  is  the  most  noticeably  weak 
point  in  the  modern  competitive  system.  Any- 
thing which  shall  offer  a  reasonable  hope  of 
displacing  credit  from  its  enormous  develop- 
ment in  modern  business  can  hardly  be  other 
than  a  good  fortune.  The  money  of  ultimate 
redemption  is  too  small  for  the  credit  fabric 
built  upon  it.  It  is  like  a  cone  resting  on  its 
apex.  This  delicate  and  unstable  equilibrium 
is  a  condition  fraught  with  constant  danger. 

Doubtless  so  long  as  credit  works,  it  affords 
desirable  economies  in  the  use  of  bullion  cur- 
rency and,  in  some  measure,  steadies  prices. 
England  succeeds  in  managing  a  much  larger 
:)er  capita  volume  of  business  than  does  France, 
and  with  a  much  lower  per  capita  supply  of 
buUiftn  currency.  But  periodically,  England 
suffers  acutely  from  the  commercial  crisis, 
while  France  is  relatively  exempt.  The  losses 
probably  outweigli  tlie  gains. 

100.    That   which   most    naturally   suggests 


COMMEliClAL    rUTSES  111 

itself  as  a  remedy,  is  to  enlarge  the  currency 
basis,  —  to  declare  that  more  money  jg  expansion  a 
of  ultimate  redemption  is  needed;  remedy? 
therefore  start  the  printing  presses  or  coin  silver. 
But  remember  that  it  is  the  shape  of  the  pyi-a- 
mid,  and  not  the  size  of  it,  whicli  is  matter  of 
concern.  Unless  there  is  found  to  be  some  tend- 
ency in  silver  coinage,  or  in  any  other  form  of 
expansion,  to  lessen  the  volume  of  credit  rela- 
tively to  money,  the  inflation  argument  fails. 

There  is  no  such  tendency.  Silver  expan- 
sion, or  any  other  expansion,  would  be  followed 
by   a    rise   in   prices    proportionate 

.      Silver  coinage. 

to  the  expansion.  The  degree  m 
which  credit  circulates  depends  upon  the 
methods  of  business  and  the  organization  of 
industry,  and  not  upon  tlie  kind  of  money.  So 
long  as  manufacturers  find  it  advantageous  to 
borrow  capital,  so  long  as  wholesalers  take 
credit  from  manufacturers,  retailers  from 
wholesalers,  customers  from  retailers,  and  all 
deposit  their  funds  in  banks  and  pay  through 
checks  and  book -keeping,  so  long  must  the 
intermixture  of  credit  remain  an  element  of 
danger.  Tn  truth,  the  very  bulkiness  of  silver 
would,  in  itself,  tend  somewhat  to  increase 
the  indncements  to  deposit  methods. 


178  ELEMENTARY  ECONOMICS 

Nor  is  there  any  great  hope  that  these  credit 
methods  will  cease  because  of  their  dangers. 
The  advantages  and  convenience  to  the  indi- 
vidual business  man  are  too  pronounced.  Here, 
again,  individual  interests  are  not  parallel  with 
the  general  interest.  No  one  business  man 
could  afford  to  stop  unless  all  should  stop,  and 
eacli  would  gain  by  violating  the  rule  intended 
for  all.  Tlie  remedy,  if  any  is  possible,  lies  in 
the  discovery  of  a  currency  effectively  flexible 
in  time  of  need. 

QUESTIONS 

"Would  it  prevent  panic  if  money  were  all  gold?  Or 
diamonds  ? 

Do  you  see  any  way  to  prevent  the  granting  of  credit, 
or  the  use  of  credit  as  cui'rency  ? 


CHAPTER    XII 

THE   COMPETITIVE    SYSTEM 

107.  Every  year  important  discoveries  are 
made  in  science,  and  important  improvements 
and  inventions  are  perfected  in  industry.  The 
great  advance  which  has  been  accomplished 
does  not  so  much  indicate  that  progress  must 
soon  cease,  as  that  progress  is,  by  the  very 
nature  of  things,  unlimited.  It  is,  indeed,  only 
when  we  come  to  examine  human  institutions, 
habits,  laws,  and  customs,  that  we  meet  the 
"widespread  conviction  that  no  progress  is  in 
store  for  the  race.  One  man  is  j^  tj,„g  ^^^^ 
sceptical  of  progress  because  he  ^^  P''°S''®^^  "^ 
believes  that  in  a  divinely  ordered  universe  all 
things  are  for  the  best;  to  assert  that  what- 
ever is  is  right,  seems  to  liim  to  imply  that 
whatever  is  not  is  wrong.  Existing  conditions 
therefore  appeal  to  him  as  the  best.  He  trusts 
and  is  content.  A  second  man  believes  in 
natural  law.  He  insists  that  it  is  Can  man  effect 
useless  to  run  counter  to  the  nature  anythiug? 
of  things.     The  suns  blaze,  the  stai-s  roll,  the 

179 


180  ELEMENTARY  ECONOMICS 

earth  revolves,  the  tides  flow,  liglit  and  dark 
succeed  each  other,  the  winds  destroy  or  save 
—  and  what  can  man  do?  He  is  a  mere  spec- 
tator. Set  over  against  the  universe  and  its 
power,  he  is  merely  as  is  an  insect;  studied  in 
the  light  of  science,  he  is  the  mere  product  of 
his  surroundings,  like  mould  or  scum;  setting 
himself  to  strive  against  the  laws  of  the  uni- 
verse, he  is  the  self-deluded  maker  of  empty 
motions.  Wliether  things  are  Ijest  as  they  are 
or  not,  they  are  as  they  are,  and  will  remain  so. 
Do  not  meddle,  let  things  pass  as  they  must  — 
laissezfaire,  laissez  passer. 

108.  There  is  a  third  point  of  view,  some- 
what like  the  others,  but  with  more  of  truth 
Can  men  change  '^  it.  Thinkers  of  this  third,  sort 
themselves?  know  that  man  can  do  much,  as  he 
has  already  done  something,  in  adapting  to  his 
needs  the  world  in  which  he  lives,  and  in  sub- 
jecting its  forces  to  his  service.  lie  has  tun- 
nelled mountains,  hollowed  mines,  dredged 
rivers,  reared  dikes,  spanned  canons,  cleared 
forests,  and  planted  them  anew.  Steam  and 
gravitation,  wind  and  tide,  are  harnessed  to  his 
tasks.  There  is  no  problem  which  nature  sets 
for  man,  no  difficulty  with  which  it  confronts 
him,  that  man  need  fear  to  meet.     But  of  the 


THE  COMPETITIVE  SYSTEM  181 

problems  which  human  nature  and  human  char- 
acter present,  let  hira  beware.  Man  has  not 
made  hinjself,  nor  can  remake.  No  one  can  lift 
himself  by  pulling  at  his  boot-straps,  nor  can 
any  man  add  one  cubit  to  his  stature.  In  mat- 
ters of  human  nature  and  human  society  men 
are  not  directors  and  governors,  but  mere  ob- 
servers. Man  as  he  is,  men  as  they  are,  these, 
they,  say,  are  a  fixed  term,  —  the  known  quan- 
tity in  the  equation  of  human  life.  In  the 
years,  or  the  centuries,  human  nature  ma}-  be 
changed,  but  it  cannot  change  itself.  Where 
any  social  problem  demands  for  its  solution 
another  human  nature  or  a  new  species  of 
human  beings,  it  is  as  well  to  drop  the  problem 
as  insoluble.  If  the  reformers'  new  millennium 
awaits  a  regenerated  humanit}'",  the  millennium 
must  be  a  weary  distance  ahead. 

109.  There  is  a  trace  of  truth  in  each  of  these 
views.  It  is  clear  enough  that,  as  related  to 
man's  environment,  man  is  a  force. 

Man  is  a  foTC6i 

Assume,  if  you  will,  that  he  is  the 
product  of  his  environment.  He  is  not  there- 
fore necessarily  inert  and  like  a  mere  puppet  of 
the  enercfies  surroundincj  him.  He  mav  co- 
operate  or  he  may  resist,  just  as  children  may 
serve  their  parents  or  rebel.     All  talk  about 


182  ELEMENTARY  ECONOMICS 

natural  la^'s  and  social  laws  Avhich  fails  to 
take  account  of  man  as  a  force,  or  which  regards 
his  share  in  the  social  on-going  of  things  as 
irrational  or  ineffective  or  unnatural,  is  a  gross 
perversion  of  both  language  and  thought.  In 
the  large  view  there  are  no  unnatural  things. 
The  sober  common  sense  of  mankind  repudiates 
the  lazy  optimism  which  denies  all  room  for 
progress,  even  as  it  condemns  the  lazy  self-dis- 
trust which  concedes  the  need  but  despairs  of 
the  remedy.  Why  should  men  search  and 
study  and  strive,  if  they  are  mere  observers, 
and  there  cannot  possibly  come  any  result  of  it 
all  ?  Science,  even,  is  good  for  something  only 
when  it  is  good  for  something. 

110.    But    notice    that   the    thinkers   of   the 
third  class  do  not  precisely  assert  the  hopeless- 
ness or  futility  of  all  human  effort. 

Men  are  forces 

as  related  to  but  only  the  helplcssuess  of  hu- 
eac  0  er.  nianity  in  face  of  the  difficulties  and 
perplexities  which  human  nature  and  human 
character  themselves  [)i('sent.  But  even  tliis 
much  is  not  true.  Just  liow  Ave  are  not  able  to 
see,  yet  somehow  eacli  of  us  is  conscious  of  a 
power  within  liimself  of  self-mastery,  self-help, 
and  self-im[)rovement.  But  even  were  this 
consciousness  a  self-delusion,  there  remains  to 


THE  COMPETITIVE  SYSTEM  183 

man  the  power  of  one  iiidividaal  over  another, 
since  in  relation  to  each  individual  his  fellows 
are  a  part  of  his  environment.  The  human  race 
is  not  a  great  indivisible  unit,  but  a  group 
made  up  of  distinct  and  separate  units.  One 
can  do  something  of  good  or  ill  in  his  relations 
to  his  neighbor.  Societies  make  laws,  punish 
criminals,  and  foster  education.  It  is  in  the 
power  of  each  man  to  spread  vice  or  virtue  or 
microbes.  To  deny  this  is  to  deny  that  good 
and  evil,  esteem  or  condemnation,  have  any 
place  in  human  affairs.  Society  contains  within 
itself  the  forces  which  may  work  for  itself  help 
or  harm.  On  any  other  terms  the  study  of 
society  would  be  a  fruitless  exercise,  the  mak- 
ing of  laws  a  simple  farce,  the  clash  of  armies 
an  empty  parade,  courts  a  sheer  mummery, 
police  and  fire  departments  a  silly  waste. 

Thus,  as  we  come  to  examine  the  present 
social  system  as  a  whole,  or  the  different  aspects 
of  it  in  detail,  we  need  to  guard  ourselves  from 
any  kind  of  prejudgment  or  from  ready-made 
conclusions  of  any  sort. 

111.  Not  a  few  earnest  and  capable  people 
regard  the  present  industrial  system  as  in- 
trinsically and  irremediably  bad.  The  private 
OAvnership  of  property  and  free  competition  in 


184  ELEMENTARY  ECONOMICS 

business  are  the  leading  characteristics  of  the 
existing  social  order.  The  critics  of  our  pres- 
Private  prop-  ^nt  social  sj'stem  deny  the  justifi- 
erty  and  free     ability  of  the  private  ownership  of 

competition  j  l  l 

attacked.  property;  they  insist  that  free  com- 

petition is  merely  another  term  for  chronic  in- 
dustrial warfare;  that  business  has  become  a 
bitterly  cruel  struggle  for  existence  —  a  sj'stem 
productive  of  antagonisms  and  destructive  of 
kindliness,  where  each  is  set  to  gain  by  his 
neighbor's  loss.  It  is,  therefore,  believed  that 
social  safety  can  be  found  only  in  a  system 
which  shall  make  men  common  owners  in  the 
means  of  production,  and  conscious  co-operators 
in  the  business  of  producing.  By  making  all 
interests  common  and  general,  it  is  thought 
possible  to  avoid  the  wastes  of  competition  and 
to  still  the  hates  and  rivalries  of  self-interest. 

112.  Stated  thus  broadly,  the  proposal  of  the 
socialists  is  an  attractive  one.  It  purports  to 
Is  there  a  ^^^^  upon  the  brothcrhood  of  man,  to 
defence?  substitute  unselfishncss  for  rivalry 

and  distrust,  to  make  all  men  equal  partners  in 
the  general  welfare.^    But  this  programme  will 

J  This  di8ciissif)n  must  not  be  understood  to  cover  all  aspects 
of  S'K-ialism  or  all  schools  of  socialistif  thinking.  Not  all  social- 
ists ffxpect  or  ilesire  to  do  away  with  rivalry  and  antagonism; 
not  all  insist  upon  the  equal  partnership  principle ;  not  all  give 


THE  COMPETITIVE  SYSTEM  185 

not  bear  close  examination.  It  is  like  those 
large  paintings  whose  distant  ])eauty  changes 
to  daub  on  near  approach.  In  the  first  place, 
we  observe  that  the  rivalries  and  antagonisms 
of  competition  have  not  resulted  from  legisla- 
tion or  agreement  or  any  sort  of  compulsion. 
They  have  not  followed  from  any  conscious 
purpose  or  artificial  arrangement.  Competi- 
tion and  contest  have  not  been  enacted.  They 
seem  certain  to  establish  themselves  unless  so- 
ciety consciously  interferes  to  prevent.  That 
is  to  say,  if  all  men,  as  men  exist  to-day,  are  to 
work  together  in  a  scheme  of  brotherly  love 
and  co-operation,  and  under  some  sort  of  wide- 
spread, common  ownership  of  capital  and  prod- 
uct, they  will  have  to  be  compelled  thereto  by 
force.  The  other  system  is  the  system  of  free- 
dom.    Socialism  is  the  system  of  compulsion. 

113.  On  the  side  of  the  existing  system  it  is 
also  to  be  urged  that  there  is,  in  fact,  obscurely 
present  in  it  a  very  large  element  of  co-opera- 
much  weight  to  the  brotherhood  of  man  as  the  basis  of  social 
organization;  not  all  look  to  state  compulsion  as  fundamental 
to  the  social  structure.  Obviously,  however,  it  is  possible  for 
us  to  examine  only  the  more  typical  ideas  and  the  characteristic 
traits  of  socialism  as  presented  by  the  main  body  of  socialistic 
thinkers.  Almost  all  agree  upon  tlic  necessity  of  the  owner- 
ship and  operation  by  society  of  all  land  and  capital,  with  some 
manner  of  joint  ownership  of  the  product  under  some  not  very 
specific  way  of  sharing  it. 


186  ELEMENTARY  ECONOMICS 

tion,  and  this,  co-operation  of  a  purely  vol- 
Present  system  luitaiy  character.  The  great  stock 
is  in  part  con-    corporations,   like  railroads,   banks, 

scious  co-opera-  i  '  '  ' 

tion.  and  manufactories,  the  fire  and  life 

insurance  organizations  and  the  great  secret 
benevolent  orders,  all  point  to  a  growing  spirit 
of  association  and  co-operation  in  modern  soci- 
ety which  seeks  no  aid  from  compulsion. 

114.  Not  only  this,  but  the  present  system, 
whatever  it  may  be  in  [)urpose,  is  in  effect  an 
It  is  almost  automatic  system  of  voluntary  co- 
entireiy  uncon-   operation.     Where  division  of  labor 

scions  co-opera-      >■ 

tion.  exists,  each  man  must,  by  some  sort 

of  exchange,  share  his  products  with  his  fel- 
lows. Division  of  labor  means  a  mutual  inter- 
dependence of  producers.  Exchange  of  goods 
takes  place  for  the  common  benefit ;  both  buyer 
and  seller  must  believe  themselves  to  be  bene- 
fited by  trading,  or  they  will  not  trade.  It  is 
true  that  each  is  trying  to  get  the  greatest  pos- 
sible benefit  for  himself,  but  neither  can  reap 
the  whole  of  it.  Each  must,  in  some  measure, 
furnish  a  help  to  the  other.  It  is  not  true  that 
one  man  necessarily  or  commonly  gains  by  trade 
at  another's  loss.  Nor,  indeed,  is  it  true  that 
the  livalries  of  competition  are  necessarily  or 
commonly  harsh  conflicts  of  interest  in  which 


THE   COMPETITIVE  SYSTEM  187 

the  well-being  of  one  is  set  over  against  the  suc- 
cess and  prosperity  of  his  neighbors.  True,  each 
is  trying  to  undersell  the  other  —  to  get  the 
trade,  to  gain  the  market,  and  to  control  it  — 
at  the  expense  or  even  at  the  ruin  of  his  rival. 
This,  however,  proves,  not  that  competition  is 
a  rivalry  between  each  member  of  society  and 
society  as  a  whole,  but  only  that  it  is  a  rivalry 
between  competing  producers.  It  is  a  co- 
operation between  each  competitor  and  society. 
When  one  producer  or  seller  prospers  as 
against  another,  it  is  by  offering  society  the 
better  product  or  the  lower  price. ^  Viewed 
therefore  from  the  point  of  view  of  society, 
competition  is  a  rivalry  in  offering  most  for 
least,  —  a  contest  in  the  rendering  of  largest 
service,  a  war  in  well-doing  —  where  success  is 
declared  to  the  largest  benefactor. 

Trade,  then,  is  a  form  of  co-operation  — 
unconscious,  it  is  true,  but  voluntary  and  effec- 
tive. The  East  Indian  laborer  is  not  aware 
that  in  result  he  works  in  order  that  an  Ameri- 
can laborer  may  consume,  nor  does  the  iron 
miner  in  England  realize  that  it  is  the  demand 


1  This  statement  must  not  be  taken  as  without  important 
exceptions.  Speoulaiitm,  shoiMy,  adviTti.sini;,  and  trickery  are 
flot  yet  well  controlled  in  the  competitive  system. 


188  ELEMENTARY  ECONOMICS 

of  Australia  which  affords  him  employment. 
But  it  may  none  the  less  be  true.  World- 
wide competition  has  brought  about  world-wide 
interdependence  and  co-operation.  The  indus- 
trial brotherhood  of  man  has  already  come. 

Thus,  the  charge  that  competition  is  mere 
conflict  will  not  hold  as  a  ground  of  criticism 
of  the  present  social  order.  Socialism  does  not 
in  this  respect  make  good  its  case.  But  sup- 
pose now  that,  for  a  moment,  we  put  socialism 
upon  the  defensive. 

115.    Men  now  work  under  the  incentive  of 

want,  incited  and  persuaded  to  effort  by  their 

interest  in  themselves  and  in  those 

Will  man  work  . 

without  self-  dependent  upon  them,  —  wives,  chil- 
intereat?  dren,  relatives,  and  friends.  Include 

all  this  activity  under  the  head  of  selfishness, 
though  the  terra  seems,  in  some  measure,  an 
inapt  one.  But  how  insure  that  men  shall  work 
strenuously,  that  society  shall  consume  the 
largest  practicable  amount  of  wealth,  if  for  that 
whicli  we  call  selfishness  there  is  substituted 
an  interest  in  the  nation  or  a  love  of  humanity 
in  general?  It  will  not  remove  the  difficulty 
to  show  that  the  interest  of  each  is  at  one  with 
the  interest  of  all.  How  shall  any  one  find 
strenuous  effort   to  be  for   his   own    interest" 


THE  cnMl'ETITlVE   SYSTEM  181' 

III  America,  foi-  example,  if  he  is  able  to  per- 
suade himself  to  woik  twice  as  hard  and  to 
produce  twice  as  much,  his  own  share  will  be 
increased  thereby  by  one  seventy-millionth. 
Brother-love  will  not  stand  this  strain. 

The  diflficulty  with  the  socialistic  scheme  of 
things  is  that  it  does  not  take  full  account  of 
man  as  he  is.  Nothing  will  take  the  place 
of  interest  in  self  or  famil}^  as  a  motive  for 
effort;  neither  fear  nor  love  of  society  in  gen- 
eral nor  any  mixture  of  fear  and  love  will 
stand  the  test.  Slavery  shows  the  insufficiency 
of  fear;  the  experience  of  the  Pilgrims  and 
of  the  early  Virginia  colonists  illustrates  the 
ineffectiveness  of  the  motive  of  indirect  self- 
interest. 

Roscher  puts  the  case  forcibly  as  follows :  — 

When  Louis  Blanc  and  Mably  rely  npon  the  sentiment 
of  honour  instead  of  personal  interest  as  the  spur  of  pro- 
duction and  the  rein  of  consumption,  and  in  respect  to 
effectiveness  instance  the  army  code  of  honour,  they 
forget,  among  other  things,  the  thirty  cases  of  capital 
punishment  provided  in  the  military  code.  ...  Were 
all  burdens  and  pleasures  of  lite  e(pially  distributed  under 
strict  communism,  and  distributed  equally,  in  line  v^'ith 
the  concepts  of  the  masses,  men  like  Thaer,  Arkwright, 
and  others,  who  now  in  library  and  laboratory  produce 
food  for  hundreds  of  thousands,  would  prodnce  with 
mattock  and  sliovel.  at  the  highest,  enough  for  three  or 


190  ELEMENTARY  ECOSOMICS 

four  men  only.  .  .  .  General  and  equal  popular  educa- 
tion as  the  communists  demand  it  would  jjractically  work 
out  at  this  merely  —  that  no  one  would  attain  to  the 
higher  scientific  development.  .  .  .  "In  place  of  the  cur- 
rent competition  to  produce  the  most  and  the  best  jiossible, 
there  would  come  about  under  socialism  a  competition  as 
to  who  could  produce  least  and  worst."  .  .  .  When  the 
first  Virginia  settlers  in  IGll  abandoned  the  system  of 
communistic  labour  and  joint-stock  methods,  it  came" 
about  immediately  tliat  in  one  day  there  was  as  much 
accomplished  as  before  in  a  week,  three  labourers  pro- 
ducing as  nmch  as  thirty  did  before.  Even  in  New 
England,  among  strong  men  accustomed  to  labour,  who 
had  made  so  great  sacrifices  in  the  interest  of  their  faith, 
communism  was  attended  with  continual  famine;  this 
changed  only  in  lH'J-i,  when  private  property  was  estab- 
lished. —  RosCHER,  translated  from  System  der  Volkswirt- 
scka/t,  Book  II. 


CHAPTER   XIII 

POPULATION,    RENT,   AND   SOCIALISM 

116.  Socialists  and  other  critics  of  the  com- 
petitive system  assert  that  the  outlook  of  society 
as  at  present  organized  is  hopeless  _ 

F  o  i  Is  every  uncom- 

—  that  adopting  the  reasonings  of  fortabiedoc- 

, .    .      ,  , ,       trine  false  ? 

the  current  political  economy  the 
lot  of  the  race  must  become  increasingly  hard. 
It  is  somehow  inferred  that  the  fault  is  rather 
with  the  present  social  system  than  with  the 
theories  upon  which  the  conclusions  rest,  or 
than  with  the  fixed  facts  of  the  world  in  which 
we  live.  In  fact  the  socialists  instead  of 
quarrelling  with  many  of  the  established  eco- 
nomic theories  assume  the  correctness  of  them 

—  including  some  which  have  been  abandoned. 
At  the  same  time  they  have  perfect  confidence 
that  the  human  environment  is  sufficient  for  a 
happy  human  destiny,  and  that  in  fact  the  ul- 
timate destiny  of  the  race  will  be  a  happy  one. 
Therefore  they  reason  that  if  the  current  eco- 
nomic doctrines  point  to  dismal  conditions   in 

1111 


102  ELEMENTARY  ECONOMICS 

the  future,  the  fault  must  lie  in  the  social 
system. 

But  there  are  two  assumptions  here,  neither 
of  which  is  free  from  doubt:  (1)  the  correct- 
ness of  the  current  economic  dogmas ;  (2)  the 
possibility  of  a  generously  prosperous  life  for 
the  race  with  the  environment  as  it  exists. 

We  must  therefore  determine  how  much  of 
truth  is  contained  in  these  assumptions.  In 
what  measure  is  the  human  outlook  a  hopeful 
one  ?  Of  what  value  are  our  economic  doctrines 
for  purposes  of  prophecy  ?  Are  there  any  ten- 
dencies in  human  life  which  need  render  the 
student  despondent  of  the  future? 

117.  When  the  pioneer  enters  upon  a  new 
continent,  with  its  wealth  of  new  resources,  its 
DiminishiDg  expanse  of  unexhausted  lands,  its 
returns  again,  gtorc  of  uucared-for  fruits,  its  teem- 
iiig  animal  life  for  sport  and  food,  he  may  well 
ho])e  for  himself  a  life  of  ease  and  plenty. 
Nature  appears  to  be  generous  far  beyond  his 
needs.  The  wide  ranges  of  land  do  not,  it  is 
true,  offer  unlimited  opportunities  and  boun- 
ties, but  in  comparison  with  his  necessities  the 
supply  far  outruns  the  need. 

And  yet  in  truth  the  life  of  the  pioneer  is  a 
long  way  removed  from  ease  and  lack  of  care. 


POPULATION,  RENT,  AND  SOCIALISM     193 

Food  is  easily  obtained,  Inat  only  f'»i"  a  iKut  of 
the  year.  Ilaivesting  and  storage  are  to  be 
provided  for;  shelter  must  be  had,  clothing 
raust  be  fashioned.  Even  if  the  chase  could 
satisfy  the  need  for  food  and  raiment,  as  for 
civilized  man  it  never  can,  there  will  remain 
the  need  f»f  hunting  a})i)liances  and  of  powder 
and  ball.  No  man  is  sufficient  for  his  own 
necessities  in  any  adequate  measure.  Fortu- 
nately for  humanity,  men  are  in  great  measure 
dependent  u})on  each  other.  We  must  live 
amonof  our  fellows  or  we  must  suffer.  Too 
sparsely  inhabited  countries  are  never  prosper- 
ous. The  planting  of  a  colony  is  a  difficult 
and  hazardous  undertaking,  as  the  early  his- 
tory of  America  testifies. 

Yet  it  is  true  that  new  countries  do  com- 
monly offer  favorable  conditions  as  far  as  food 
and  raw  materials  are  concerned.  The  insuffi- 
ciency is  in  the  products  of  machines  and  mines 
and  factories  —  in  the  commodities  which  de- 
pend for  their  production  largely  upon  human 
association. 

But  as  the  new  continent  becomes  more 
thickly  populated,  the  advantages  of  cheap  food 
tend  to  disappear.  The  gathering  of  wild  prod- 
ucts gives  place  to  cultivation;  stock-farming 
o 


194  ELEMENTARY  ECONOMICS 

is  substituted  for  the  chase.  Pastures  must  be 
fenced;  winter  food  must  be  provided  for  the 
stock.  Land  is  no  h)nger  to  be  had  for  the 
taking;  rents  are  charged. 

We  are  again  face  to  face  with  tlie  old  fact, 
or,  as  we  call  it,  the  old  law  of  diminishing 
returns.  After  a  certain  early  stage  is  passed, 
it  becomes  more  and  more  difficult,  as  popula- 
tion grows  more  and  more  dense,  to  obtain  a 
living  from  the  land.  Rent  is,  indeed,  as  we 
have  already  seen,  the  index  of  increasing 
resistance  to  the  increase  of  agricultural  prod- 
ucts —  the  measure  of  the  extent  to  which 
cultivation  has  been  pushed  to  lands  of  lower 
pKiductive  capacity. 

In  view  of  the  fact  that  the  population  of 
the  woild  is  lapidly  increasing,  this  law  of 
diminishing  returns  has  been  shown  to  have 
disquieting  implications.  Recalling  also  tlie 
tendency,  manifested  by  all  forms  of  life  lower 
than  the  human,  to  multiply  as  far  as  food,  ene- 
mies, and  climate  will  permit,  we  come  in  view 
of  the  evidence  from  which  Malthus  inferred 
that  the  human  race  tends  strongly  to  over- 
population. If  over-population  is  inevitable,  it 
seems  likewise  inevitable  that  the  human  race 
must  one  day  meet  the  liaiiiiM'  of  starvation. 


POPULATION,  RENT,  AND  SOCIALISM     195 

Malthus'  dismal  forecast  is  to  be  questioned, 
if  at  all,  not  on  the  doctrine  that  over-popu- 
lation means  poverty  —  for  this  is  not  open 
to  question  —  but  on  the  doctrine  that  over- 
population is  in  fact  inevitable. 

118.  Some  short  discussion  has  been  had 
(Sections  74-78)  of  the  degree  in  which  the 
Malthusian  forecast  demands  ac-  Is  Malthus  to  be 
ceptance;   now  note  what   use    the  ZlZltil, 

socialist    makes   of  the  Malthusian  °^  *^«  competi- 
tive system,  or 

doctrine.  He  attempts  no  condem-  the  facts? 
nation  of  the  economists  generally,  as  if  they 
were  to  be  held  responsible  for  the  facts 
which  they  declare.  All  men  must  know, 
even  though  some  seem  sometimes  to  forget, 
that  the  economists  have  not  fixed  and  es- 
tablished the  grain-bearing  capacity  of  the 
fields.  The  messenger  who  brings  bad  news 
does  not  deserve  to  be  choked  therefor,  nor  is 
the  doctor  to  be  hated  because  of  his  unfavor- 
able diagnosis;  even  an  undertaker  may  be  a 
kind-hearted,  worthy  citizen.  Instead  of  con- 
demning the  economists,  the  socialist  condemns 
the  present  industrial  system.  This,  however, 
is  not  much  more  reasonable.  The  present 
economic  order  is  likewise  not  responsible  for 
the  nature  of  the  land  or  for  the  facts  of  agri- 


I'JG  ELEMEyTARY  ECONOMICS 

culture,  nor  would  cliaugiiig  the  system  alter 
the  facts.  Under  socialism,  as  well  as  under 
the  present  system,  twenty  men  cultivating 
one  acre  of  laud  would  lind  it  exceedingly 
difficult  to  make  a  living. 

If  the  socialist  regards  the  outcome  of  over- 
population as  a  serious  one  under  the  present 
social  system,  there  is  still  no  use  in  changing 
to  socialism  unless  socialism  would  somehow 
help  the  case.  Children  now  and  then  get 
angry  and  break  things  out  of  petulant  im- 
patience. But  this  is  childish.  It  is  Lest 
never  to  take  medicine  unless  one  knows  what 
it  is  for,  and  what  effect  is  likely  to  come  of  it. 
Where,  as  under  socialism,  the  community  as  a 
whole  takes  the  burden  of  seeing  every  family 
well  provided  for,  the  tendencies  toward  over- 
population would  probably  not  be  less,  and  the 
land  would  be  no  better.  ^ 

The  law  of  diminishing  returns  is  a  mere  fact 
with  which  every  farmer  shows  himself  familiar 
in  failing  to  reduce  his  field  from  twenty  acres 
to  one  and  to  apply  all  his  labor  and  fertilizers 
upon  that  one  acre.  Neither  the  human  race  nor 
the  social  system  can  remedy  this  agricultural 

1  One  ought  in  fairness  to  ;ulil  lliiit  there  are  socialists  who 
maintain  tliat  a  socializeil  edmniiuiity  e;ui  control  the  growth 
of  population  as  an  individnalistic  coininiinity  never  can. 


POPULATION,  RENT,  AND  SOCIALISM      11)7 

fact,  nor  is  any  economic  theory  or  tlieorist  to  be 
charged  with  responsibilit}-  for  it.  Tlie  liumaii 
race  is  not  able  to  make  its  environment  to  its 
liking.  Over-population  may  be  far  off;  better 
knowledge  of  chemistry  in  its  application  to 
farming,  better  choice  of  })ro(hicts,  or  better 
varieties  of  products,  or  even  the  cultivation  of 
products  now  unknown,  may  for  a  long  time 
hold  in  check  the  harsh  pressure  of  want.  But 
population  cannot  endlessly  nuilti[)l\',  without 
at  some  point  meeting  with  resistance  in  les- 
sened supplies  of  food  products  and  of  the  raw 
materials  of  industry. 

119.  But  while  the  human  environment  lacks 
in  adaptability,  there  is  (as  we  saw  in  Section 
6)  a  large  measure  of  adai)tability  increasing 
in  man.  In  science,  in  art,  in  pio-  returns  again, 
cesses,  and  in  appliances,  progress  is  continu- 
ous. A  pioneer  population  as  it  increases  in 
numbers  finds  that  new  methods  of  production 
become  possible.  Division  of  labor,  wliidi 
means  the  specialization  of  employments, 
becomes  practicable.  With  a  lai-ge  niaiket, 
economies  in  production  become  possible. 
With  still  larger  markets  tlie  use  of  machiner}' 
is  practicable.  With  increasing  i)<i[iul;ition 
improved    methods   of    transportation    become 


198  ELEMENTARY  ECONOMICS 

profitable,  and  manufacturing  centres  are  estab- 
lished to  buy  and  sell  over  a  wide  territory. 
The  economies  of  the  great  factory  system  fol- 
low —  the  use  of  expensive  machinery,  the  ad- 
vantages of  great  steam-  or  Avater-powers,  the 
gains  of  scientific  oversight,  and  of  salaried 
designing  and  inventing.  Thus,  with  increas- 
ing population  and  widening  markets  the  field 
of  opportunity  enlarges  for  invention  and  im- 
provement. There  w^as  no  room  for  great  fac- 
tories with  their  machinery  and  complicated 
processes,  until,  with  increasing  population, 
human  ingenuity  had  placed  at  man's  disposal 
the  modern  methods  of  transportation.  It  is 
true  that  cause  and  effect  are  hard  to  distin- 
guish here.  There  is  a  complex  interplay  and 
reaction,  all  things  moving  forward  by  the  aid 
of  each  and  for  the  aid  of  all. 

But  all  this  progress  in  invention,  transpor- 
tation, and  trade  is  human  progress.  It  belongs 
to  the  economic  factor,  man.  There  is  then  a 
law  of  increasing  returns  for  the  human  side 
of  the  case  as  well  as  a  law  of  diminishing 
returns  for  the  environment.  It  is  possibly 
true  —  indeed  it  is  probable  —  that  the  advan- 
tages of  division  of  labor  and  of  larger  factory 
plants  are  even  now  approaching  the  limit  of 


POPULATION,  RENT,  AND  SOCIALISM      199 

increase.  But  tlie  advance  of  mankind  in  sci- 
ence, art,  skill,  processes,  methods,  tastes,  and 
desires,  is  not  subject  to  limitation.  On  this 
side  there  is  really  a  law  of  increasing  returns. 

So,  even  if  it  grows  more  difficult  to  obtain 
the  necessary  supply  of  raw  materials  from  the 
earth,  there  may  be,  we  repeat,  at  the  same 
time  an  increasing  share  of  productive  energy 
which  can  be  ap[)lied  for  this  purpose.  The 
human  race  will  not  necessarily  be  the  worse 
off  in  the  end. 

It  is,  then,  evident  that  too  much  may  be 
inferred  in  the  way  of  evil  forecast  from  the 
tendencies  known  as  the  Ricardian  Law  of 
Rent  and  the  Malthusian  Law  of  Population. 
At  any  rate,  to  call  these  tendencies  laws  does 
not  make  them  subject  to  repeal  through  social- 
ism, or  justify  condemnation  of  the  present 
economic  system  as  if  it  had  enacted  them. 

Remember,  however,  that  to  reject  socialism 
as  a  general  remedy  for  all  social  ills  is  not  to 
deny  that  there  are  real  evils  in  modern  society. 
It  is  merely  to  assert  that  these  evils  must  be 
considered  and  treated  as  distinct  problems 
rather  than  as  one  great  problem  awaiting  one 
sweeping  solution.  The  social  question  is  in 
truth  a  cluster  of  questions. 


200  ELEMENTARY  ECONOMICS 


SUGGESTIVE  QUESTIONS 

How  would  socialism  affect  inventions,  new  processes, 
the  progress  of  science  ? 

What  etfect  on  literature,  history,  poetry,  philosophy, 
etc.  ? 

On  the  per  capita  production  of  the  mere  necessities 
of  life? 

Are  there  immaterial  goods?     Give  illustrations. 

Suppose  several  men  to  have  worked  together  in  dig- 
ging a  ditch :  when  the  pay  is  to  be  divided  should  the 
shares  be  equal  ?  Or  according  to  the  size  of  families  ? 
Or  according  to  efforts?  Or  to  character?  Or  to  num- 
ber of  feet  dug  ? 

Distinguish  between  justice  and  charity. 


CHAPTER   XIV 

SOME    CURRENT   QUESTIONS   IN  ECONOMICS 
SPECULATION 

120.  We  saw  in  Section  31  that  desires 
grow  less  intense  with  partial  satisfaction. 
One  does  not  become  thirstier  the  Desires  are  not 
more  he  drinks,  or  hnngrier  the  ^^^  -^ 
more  he  eats.  It  is  possible,  though  direction. 
it  is  not  common,  to  have  a  good  thing  in 
superfluity.  There  may  be  more  food  upon  the 
table  than  is  wanted  for  that  meal.  So  it  is 
within  possibility  that  there  should  be  more 
food  in  the  world  than  is  wanted  by  the 
people  of  the  world.  With  pioneers  in  a  new 
country,  and  especially  in  a  tropical  country, 
food  supplies  often  exceed  the  necessities ;  the 
market  is  glutted,  so  to  speak.  And  we  have 
seen  that  as  men  become  more  numerous  the 
bounties  of  nature  become  insufficient,  so 
that  men  must  work  in  order  to  satisfy  their 
wants.     When  thinq-s  are  brought  to  market 

201 


202  ELEMENTARY  ECONOMICS 

for  sale,  prices,  as  we  know,  must  go  low 
enousfh  so  that  the  demand  will  absorb  the  entire 
supply.  It  quite  often  happens  in  the  cities 
that  ripe  fruits  are  sold  at  almost  nothing. 
The  reason  for  this  is  plain,  when  we  reflect 
that  there  is  not  an  unlimited  demand  for 
bananas  or  strawberries.  At  no  matter  how 
low  a  price,  j^ou  AA^ould  not  at  one  time  buy 
very  many  dozens  of  bananas.  We  are  again 
in  face  of  the  fact  that  value  cannot  exist  in 
the  absence  of  some  measure  of  scarcity.  Un- 
limited abundance  would  mean  the  absence  of 
value.  Thus  value  is  not  to  be  taken  as  the 
measure  of  well-being.  Utility,  and  not  value, 
points  directly  to  usefulness.  Value  indicates 
some  limitation  upon  utility  by  reason  of  scar- 
city.    (See  Section  38.) 

121.    It  is  very  important  that  the  things  we 

most  need,  like  food  and  coal,  should  be  cheap. 

Tlie  human  race  can  get  along  well 

Things  acutely  _  .  . 

needed  we  get  enough  with  great"  Scarcity  and  high 
value  in  diamonds.  Those  things 
wliich  the  human  race  greatly  needs  are  com- 
monly easy  to  get,  else  there  would  be  no  human 
race.  In  fact,  the  tilings  which  we  most  acutely 
need  —  space  and  air  and  water  —  we  mostly  get 
for  nothing,  tlie  su[)[)ly  of  tliem  being  so  great. 


SPECULATION  203 

If  the  springs  should  dry  up,  drinking-water 
might  acquire  value,  as  it  does,  in  fact,  on  the 
desert  or  in  the  cities.  If  the  rains  refused 
to  fall,  we  should  have  to  re[)lace  them  by- 
irrigation  ditches  ;  but  this  would  be  no 
cause  for  gladness.  Gas  and  lamps  in  place 
of  sunlight  would  be  more  trouble  to  no  bet- 
ter  results. 

122.  With  many  things  —  with  food  prod- 
ucts especially  —  the  consuming  capacity  of 
the  world  cannot  be  greatly  in-  j^  ^^^  f„„j 
creased.  On  the  other  hand,  it  is  demand  elastic  7 
not  possible  largely  to  reduce  consumption 
without  great  suffering.  We  say  of  such  cases 
that  the  demand  is  inelastic.  With  many 
commodities,  however,  a  very  large  increase  in 
supply  can  be  marketed  with  a  relatively  small 
reduction  in  price,  while  if  the  price  should 
greatly  advance,  a  large  part  of  the  demand 
would  be  withdrawn.  Books,  pleasure  trips, 
sewing  machines,  and  bicycles,  are  good  ex- 
amples of  this  second  class.  In  these  cases  we 
say  that  the  demand  is  elastic.  Where  the  de- 
mand is  elastic,  the  supply  may  increase  much 
more  rapidly  than  the  price  falls ;  so  a  decrease 
in  supply  would  not  greatl}'  raise  the  price. 
But  with  food  products  prices  rise  out  of  pro- 


204  ELEMENTARY  ECONOMICS 

portion  to  the  decrease  in  supply,  and  fall  out 
of  proportion  to  the  increase. 

123.  This  explains  much  that  is  peculiar  in 
the  movements  of  rents.  As  population  iii- 
Eiasticity  and  creases,  the  poorer  lands  must  be 
rents.  cultivated;  going  without  the  prod- 
ucts is  not  practicable.  So  a  small  increase 
in  supply  from  the  opening  up  of  good  lands 
or  from  improvements  in  agricultural  methods 
will  make  possible  the  abandonment  of  poor 
land  at  the  margin  (jf  cultivation. 

124.  This  question  of  elasticity  of  demand 
being  well  understood,  we  are  in  position  to 
Elasticity  and  ^^e  how  with  food  products  it  comes 
prices.  about,  not  only  that  prices  are  high 
with  a  short  crop  —  for  this  is  not  strange  — 
but  that  tlie  aggregate  selling  price  of  the  crop 
is  higher  for  a  short  than  for  an  abundant 
crop. 

This  fact  is  stated  by  the  Engli.sh  economist 
Thorold  Rogers,  in  the  following  words  :  — 

"  TJjere  is  one  law  of  prices  which  you  must  know  and 
understand  before  you  can  make  the  least  progress  in 
interpreting  the  simplest  i>roblem.  It  is  known  to  some 
economiMts,  I  do  not  say  all,  for  it  is  most  unaccountably 
neglected  or  obscured  in  most  treatises  on  the  subject,  as 
Gregory  King's  Law.  We  take  it  a  defect  in  the  han^est 
may  raise  the  price  of  corn  in  the  following  proportions: 


SPECULATION  205 

Defect.  Above  the  common  rat*. 

One-tenth  raises  the  price Three-tenths. 

Two-tenths  raises  tlie  price Kiyht-tenths. 

Three-tenths  raises  the  price  ....  Sixteen-tenths. 

Four-tentlis  raises  the  price Twenty-eight  tenths. 

Five-tenths  raises  the  price Forty-five  tenths. 

The  price  of  any  article  in  demand  but  at  present  in 
defect  rises  in  price  by  a  different  ratio  from  that  indi- 
cated from  the  ascertained  amount  of  the  deficiency ;  tlie 
price  of  any  article  in  demand  but  at  present  in  excess, 
falls  in  price  by  a  different  ratio  from  that  indicated  from 
the  ascertained  amount  of  the  over-supply.  The  opera- 
tion of  the  above  law  is  always  most  dominant  in  articles 
of  prime  necessity,  in  which  no  notable  economy  can  be 
made  without  sufferijig  on  the  part  of  the  people  when 
supply  is  short,  and  no  notable  increase  of  consumption 
can  be  expected  w^hen  the  quantity  is  in  excess  of  supply. 
If  the  article  is  relatively  perishable,  the  phenomena  in- 
crease in  intensity  on  either  side." 

We  may  remark  that,  as  applied  to  any  one 
cereal  product,  the  figures  above  given  are  prob- 
ably an  over-statement.  As  applied  to  the  total 
of  agricultural  products,  the  error  is  probably 
in  tlie  other  direction. 

125.    Bearing  in  mind  that  food  production 
is,  in  large  measure,  periodic  with  the  seasons, 
we  are  now  in   position  to  under-  Elasticity  and 
stand    why  price    fluctuations    are  in^e'if,"^;^^ 
especially     characteristic     of     food  an  evil? 
products,  and  why  speculation  especially  busies 


206  ELEMENTARY  ECONOMICS 

itself  with  these.  It  is  easy  to  denounce  the 
speculator  for  trafficking  in  the  necessaries  of 
life,  and  for  profiting  at  the  expense  of  society; 
but  it  is  as  cheap  and  shallow  as  it  is  easy. 
We  need  attempt  no  justification  of  the  mo- 
tives of  the  speculator  —  they  are  probably  bad 
enough;  but  fortunately  there  are  many  cases 
in  this  world  where  men,  seeking  only  their  own 
well-being,  bring  about  the  well-being  of  others. 
The  speculator  does  not  commonly  cause  the 
rise  in  prices,  but  merely  brings  it  earlier  than 
it  would  otherwise  come.  If  the  supply  of  food 
is  short,  prices  will  have  to  rise.  It  is  well 
that  there  are  men  who  make  it  their  business 
to  study  the  crops  and  the  harvests,  and  who 
give  early  notice  of  a  coming  scarcit}^  thereby 
encouraging  society  to  economize  its  supplies, 
and  (M)m})elliiig  it  to  do  so  by  forcing  prices  up. 
Tims  in  times  of  seeming  plenty,  supplies  are 
set  aside  for  times  of  later  need  —  "a  service 
wliicli  lias  been  well  compared,  by  Archbishop 
Whately,  to  that  rendered  by  the  ca^jtain  of  a 
ship,  who,  taking  account  of  the  stock  of  pro- 
visions at  his  disposal,  and  the  length  of  his 
intended  voyage,  adjusts  to  these  conditions 
the  rations  of  his  crew  "  (J.  E.  Cairnes). 

12G.    The  advantages  of  speculation  to  the 


SPECULATION  207 

producer  are  equally  evident.  But  the  farmer 
is  prone  to  believe  that  the  profits  jj^gg  ^j^g  p^^. 
are  made  at  his  expense;  he  sees  ducer  suffer? 
speculators,  who  own  not  one  pound  or  bushel 
of  product,  selling  for  future  delivery  vast 
quantities,  say  of  wheat,  to  buyers  who  have 
neither  the  ability  nor  the  intention  ever  to 
receive  the  goods.  Instead  of  actual  delivery 
of  the  goods  at  the  date  agreed  upon,  the  opera- 
tors fix  the  terms  of  settlement  by  comjiarison 
of  the  actual  market  price  with  the  stipulated 
price.  If,  for  example,  wheat  is  selling  at  two 
cents  per  bushel  higher  than  the  agreed  price, 
the  seller  pays  this  two  cents  per  bushel  to  the 
buyer  and  the  transaction  is  closed;  if  Avheat 
has  fallen,  the  seller  wins. 

It  strikes  the  farmer  that  this  enormous  sell- 
inof  of  wheat  which  does  not  exist  must  hammer 
down  the  price.  But  for  every  selling  there  is 
a  bu3'ing.  If  the  consumer  should  turn  his  at- 
tention to  the  case,  he  would  be  equally  justi- 
fied in  concluding  that  all  this  speculative 
buying  must  greatly  enhance  the  price.  In 
truth,  these  purel}-  fictitious  buyings  and  sell- 
ings are  in  the  long  run  of  small  importance 
or  of  no  importance  to  producers  and  consum- 
ers, except  as  a  jiarl  ol"  (he  process  by  which 


208  ELEMEyTARY  ECONOMICS 

prices  are  fixed.  But  the  buyers  who  actually 
take  and  store  the  product  till  the  time  of  con- 
sumption draws  near,  perform  a  great  service 
to  both  buyer  and  seller.  If  the  farmer  had  to 
sell  his  product  in  tlie  fall  at  a  price  at  which 
ultimate  consumers  would  consent  to  purchase 
their  year's  supply,  he  would  receive  a  con- 
vincing object  lesson  of  the  advantage  to  him 
of  this  speculative  buying.  Housekeepers  will 
not  buy  a  year's  supply  of  flour  in  advance, 
unless  at  a  very  great  saving.  Many  of  them, 
in  fact,  could  not  buy  if  they  would. 

127.  It  is  only  when  the  so-called  corner  is 
brought  about  that  speculation  deserves  the 
Corners  are  condemnation  whicli  it  receives. 
«'il'  Tlie    motives    and    methods    of   the 

speculators  are,  of  course,  quite  another  ques- 
tion. Ill  its  ordinary  working,  speculation 
increases  the  total  usefulness  of  commodities 
by  postponing  their  consumption  to  the  time 
of  greatest  need.  The  effect  of  the  corner 
exactly  reverses  this  process.  If  the  supply  can 
be  monoi)olizcfl,  tlie  aggregate  selling  jn-ice 
may  be  increased.  Utility  is  sacrificed  to  raise 
values.  CSee  Section  38.)  The  postponement 
of  tlie  consumption  is  at  the  expense  of  current 
consumption.      An  immediate   scarcity   is   fol- 


SPECULATION  209 

lowed  by  a  corresponding  excess.  It  is  true 
that  the  specuhitor  must,  after  the  corner,  sell 
at  low  prices  some  share  of  the  supply  which 
was  taken  from  the  market.  But  this  falls  far 
short  of  cancelling  his  profits;  he  could  per- 
haps even  have  afforded  to  destroy  it. 

But  in  order  to  enjoy  the  profit  from  an  in- 
creased price,  the  speculators  must  have  pur- 
chased practically  the  whole  of  the  market  sup- 
ply. This  is  a  difficult  matter  and  requires  a 
vast  amount  of  capital,  even  where  the  volume 
of  the  commodity  to  be  cornered  is  not  large. 
The  fact  that  many  men,  who  have  no  share  of 
the  supply  on  hand,  offer  to  sell  products  and 
agree  to  deliver  them,  greatly  increases  the  dif- 
ficulty. These  offers  are  in  one  sense  mere  bets 
upon  the  course  of  the  market,  but  as  long  as  the 
offerer  is  responsible  the  offer  must  be  accepted, 
else  it  has  the  same  effect  to  defeat  the  corner 
as  if  it  represented  actual  commodity.  No  cor- 
ner can  force  prices  up  except  by  frightening 
these  offers  out  of  the  market,  or  by  accepting 
them.  When  now  the  corner  has  succeeded, 
not  only  does  it  make  the  profit  upon  the  sup- 
ply which  it  has  to  sell,  but  also  an  oftentimes 
enormous  profit  from  the  people  who  have  agreed 
to  deliver  and  are  not  able  to  fulfil. 


210  ELEMENTARY  ECONOMICS 

COMBINATIONS  AND   MONOPOLIES 

128.  The  theory  of  monopoly  should  now 
occasion  little  difficulty.  It  is  easy  to  under- 
stand how  it  is  often  better  to  sell  a  little  at  a 
large  profit  per  piece,  than  more  at  a  smaller 
profit.  As  long  as  the  monopoly  controls  the 
supply,  it  can  fix  the  price  at  the  point  where 
the  profit  is  greatest.  It  is  better,  for  example, 
to  sell  500  at  three  cents  profit  each  than  1000 
at  one  cent  profit  each.  Of  course  the  mo- 
nopoly has  to  keep  in  view  the  danger  of  arous- 
ing competition,  and  the  necessity  of  fighting 
it  if  it  comes.  Thus  it  commonly  is  true  that 
the  monopoly  prices  are  kept  somewhat  below 
mark  of  maximum  profit  for  the  immediate 
time,  and  occasionally  go  very  low,  often  much 
below  cost,  in  order  to  discourage  or  ruin  com- 
petitors. 

Monopolies  are  probably,  on  the  whole,  inju- 
rious to  society  because  of  their  habit  of  sacri- 
ficing utility  to  value ;  that  is  to  say,  they  force 
up  the  selling  price  by  creating  scarcity,  — 
they  increase  the  sacrifices  while  at  the  same 
time  diminishing  the  consumption,  —  they  sub- 
tract from  utility  to  add  to  value.  (See  Sec- 
tion 38.; 


TRADES    UNIONS  211 


TRADES-UNIONS 


129.  The  antagonism  between  utility  and 
value  helps  in  the  explanation  of  trades-unions. 
Evidently  if  the  number  of  producers  in  any 
given  line  can  be  artilicially  restricted,  the 
product  will  be  limited,  the  prices  high,  and 
the  possible  wages  correspondingly  high.  The 
union,  if  it  can  control  the  labor  supply,  can 
exact  from  the  employer  all  the  wages  which 
he  can  afford  to  pay.  The  effects  may  or  may 
not,  in  the  price  of  products,  extend  to  consum- 
ers. It  is  in  the  effect  on  laborers  seeking  a 
place  of  employment  in  the  ranks  of  skilled 
labor  that  the  effects  of  the  unions  are  chiefly 
to  be  regretted.  In  this  respect  their  methods 
are  open  to  the  same  criticism  as  are  those  of 
other  monopolies.  The  attitude  of  many 
trades-unions  toward  apprentices  is  a  leading 
instance.  The  well-being  of  society  demands 
the  maximum  of  intelligence  among  the  la- 
borers and,  unless  greater  advantages  in  other 
directions  are  sacrificed,  the  maximum  of  prod- 
uct. The  exclusion  of  laborers  from  employ- 
ment of  any  sort,  or  the  restriction  of  them  to 
the  unskilled  industries,  strikes  at  social  well- 
being  through  a  diminution  of  the  social  prod- 


212  ELEMENTARY  ECONOMICS 

uct,  and  rather  increases  than  diminishes  the 
inequalities  of  distribution. 

But  trades-unions  are  more  than  associations 
for  the  restriction  of  product :  they  are  societies 
for  mutual  education  and  mutual  insurance. 
These  are  praiseworthy  objects,  and  tend  to  in- 
crease the  efficiency  and  the  contentedness  of 
the  laboring  classes.  As  associations  for  pro- 
tecting the  individual  laborers  against  injus- 
tice and  oppression  by  employers,  and  for 
insisting  upon  proper  conditions  of  sanitation 
and  safety  in  shops  and  factories,  and  upon 
reasonable  hours  of  labor,  the  unions  are  effec- 
tive and  commendable  organizations. 

SUGGESTIVE  QUESTIONS 

In  what  degree  can  the  large  concern  outdo  the  smaller 
in  economies  of  production  ? 

Is  this  equally  true  of  the  great  farm  or  the  great 
store  ? 

Ought  society  to  get  the  benefit  of  these  economies? 

What  are  the  natural  limits  in  the  growth  of  giant 
indastries? 

May  these  limits  be  enlarged  by  trusts  and  combina- 
tions between  different  plants? 

How  much  has  cut-throat  competition  to  do  with  this? 

In  what  sense  do  you  regard  the  law  of  increasing  re- 
turns as  a  permanent  fact  in  industry? 

How  does  transportation  open  the  way  to  the  giant 
industry  ? 


TEA  DES-  UNIONS  21 3 

What  benefits  can  you  mention  from  competition  ? 

How  are  honest  manufacturers  driven  to  doubtful 
methods  ? 

Do  you  think  it  proper  for  the  government  to  enforce 
resiulations  in  reuard  to  sanitation?  Child  labor?  Adul- 
teration?     Lengtli  of  work  day? 

Under  our  form  of  government  would  this  fall  to  the 
separate  states  or  to  the  general  government? 

What  bearing  have  protective  tariifs  on  the  ease  of 
combination  ? 

AVhat  is  the  harm  in  combination  ? 

Could  anything  be  done  by  taxation  to  obtain  for 
society  the  benefit  of  cheaper  processes,  or  to  protect 
society  from  artificially  high  ])rices? 

How  about  the  justice  of  the  thing? 

Is  it  a  moral  wrong  to  attempt  to  wreck  another's 
business  by  selling  goods  under  cost?  What  should  you 
say  of  an  action  for  damages  in  this  case? 

Do  you  know  of  any  instance  of  cut-throat  competi- 
tion?    Who  suffer?     Who  gain? 

In  case  of  street  railways,  city  water  works,  gas  works, 
electric  light  works,  does  the  public  suffer  most  from 
competition  or  from  combination? 

AVhat  do  you  think  of  city  operation  of  these  industries? 
City  ownership  and  leasing  ?     City  taxation  ? 

What  effect  do  these  industries  have  on  city  politics ? 
What  effect  would  come  under  city  ownership? 

What  effect  would  national  railways  have  on  poli- 
tics ? 

Is  national  ownership  practicable  while  there  is  private 
ownership  in  the  land?     What  is  the  connection? 

Do  the  same  considerations  apply  to  telegraph  or  postal 
service  ? 

To  what  extent  do  you  regard  railway  discriminations 
as  responsible  for  monopolies? 


214  ELEMENTARY  ECONOMICS 

In  what  senses  are  laborers'  interests  parallel  with  em- 
ployers' interests  ? 

In  what  sense  adverse  to  employers'  interests? 

Is  the  laborers'  contest  a  contest  against  capital?  Is 
it  an  attempt  to  lower  rates  of  interest? 

Can  anytliing  be  done  by  labor  unions  to  lower  rents? 

Does  the  contest  concern  wages  as  against  interest, 
or  wages  as  against  profits? 

In  what  degree  ai'e  profits  obtained  by  unfair  treat- 
ment of  individual  workmen  ?  By  unwholesome  or  un- 
sanitary conditions  for  work  ? 

By  labor  of  children  and  women  ? 

By  adulteration  and  lying? 

From  which  of  these  do  laborers  suffer? 

What  can  labor  unions  do  in  regard  to  each  of  these 
evils? 

If  unskilled  laborers  all  work,  what  determines  their 
wages  ? 

"What  effect  from  a  combination  which  should  raise 
the  wages?  Could  as  much  product  be  sold?  Could 
as  many  men  be  employed  ?  What  would  the  out-of- 
works  do? 

Is  combination  among  unskilled  laborers  likely  to  be 
effective  in  raising  wages?  In  protectmg  members  from 
oppression  by  employers  ? 

Inquire  among  employers,  and  see  whether  they  find 
the  labor  unions  a  convenience  in  adjusting  disputes.  In 
avoiding  disputes. 

Is  combination  among  employers  possible  for  regu- 
lating wages  ?     Probable  ? 

Did  the  Chicago  railroads  practise  it  in  1894? 

Would  travellers  and  shippers  ultimately  get  a  benefit 
from  tliese  lower  wages? 

Do  strikes  commonly  succeed  ?  If  not,  does  this  prove 
the  failure  of  strikes  to  benefit  the  workmen  ? 


THE  EIGIIT-IIOJrR  DAY  215 

Does  the  armed  peace  of  Europe  tend  to  prevent  war  ? 

What  do  you  think  of  government  ownership  of  rail- 
roads from  the  wages  aspect  of  the  case? 

Can  skilled  labor  through  combination  get  higher 
wages? 

Must  there  be  methods  of  excluding  competition? 

Is  this  desirable  ? 

If  as  many  men  work  for  as  long  a  time,  can  wages  be 
changed  ? 

If  the  number  of  workers  or  the  length  of  the  day  be 
lessened,  who  suffer? 


THE   EIGHT-HOUR   DAY 

130.  llectiUiiig  that  wages,  though  fixed  by 
the  adjustment  of  supply  and  demand,  are  de- 
termined by  the  productivity  of  ^  question  of 
labor  as  the  source  of  the  ability  pr°<i^°t- 
to  pay  wages,  —  that  therefore  wages  must  be 
drawn  in  the  long  run  from  product,  and  that 
competition  tends  to  fix  interest  and  profit  at 
the  level  of  marginal  services,  —  it  is  clear  that 
the  effect  of  the  eight-hour  day  on  wages  must 
be  determined  by  its  effect  on  the  social  divi- 
dend. All  attempts  to  obtain  high  wages  by 
making  labor  scarce,  or  its  aggregate  product 
small,  rest  upon  sheer  fallacy,  unless  the  restric- 
tion be  limited  to  one  industry  and  that  indus- 
try be  one  in  which  the  monopoly  principle  may 
be  applied.     Even  here,  not  employers,  but  con- 


216  ELEMENTARY  ECONOMICS 

sumers,  must  iinally  pay  the  costs  of  the  arti- 
ficial rise.  Einphiyers  pa}'  wages  as  fixed  by  the 
selling  price  of  their  products.  Shorter  hours 
and  a  relatively  high  compensation  for  laborers 
in  a.  given  employment,  would  quickly  recruit 
the  ranks  of  wage-earners  from  agricultural  or 
other  laborers. 

The  question  thus  remains  twofold:  (1)  Will 
the  aggregate  production  be  lessened  by  the 
change  to  au  eight-hour  day?  (2)  If  so,  is  the 
change  desirable? 

131.  (1)  A  twenty-hour  working  da}^  if  it 
should  prove  physically  possible,  would  mean 
weary,  stupid,  ineffective  labor.  Better  results 
in  product  would  be  obtained  with  fewer  hours 
and  longer  rest.  In  most  industries  it  is  prob- 
able that  a  twelve-hour  day  is,  in  the  long  run, 
and  purely  as  a  question  of  product,  undesir- 
able as  compared  with  ten  hours.  But  this 
shortening  process  may  go  too  far.  That  six- 
teen hours  is  an  improvement  on  twenty,  or  ten 
on  twelve,  does  not  conclusively  recommend  the 
eight-hour  day  as  against  the  ten.  Much  de- 
pends ui)on  the  nature  of  the  industry,  much 
also  upon  the  national  characteristics  of  the 
laborers.  Pi'ol)ably,  on  the  average,  productive- 
ness would  fall   with  a  cliange  to  eight  hours. 


THE  EWriT-flOUIl   DAT  217 

(2)  Ls  this  necessaril}^  an  evil?  Is  leisure  good 
for  anything?  On  what  conditions?  How 
about  health  and  content?     Morals? 

THE   SWEATING   SYSTEM 

What  fixes  the  wages  of  employees  in  sweatshops? 

Do  the  em2)loyers  make  unusually  large  profits  or  is 
competition  probably  fully  active  among  them? 

Do  the  merchants  make  large  profits  in  the  handling 
of  goods  from  sweatshops,  or  is  the  margin  one  of  close 
competition  ? 

AVith  so  many  <lozen  shirts  to  sell,  is  it  possible  to 
maintain  higher  prices  and  yet  sell  all  the  shirts?  IIow 
arrange  to  get  higher  prices  per  shirt.  \V''hat  must  be 
the  effect  on  the  laborers  if  only  as  many  shirts  are  sold 
as  can  be  sold  at  high  prices  ? 

Wiiat  effect  (1)  on  employers,  (2)  on  laborers,  if  wages 
are  increased  without  increasing  the  price  of  products  ? 

Is  the  purchaser  of  sweatshop  products  doing  a  benefit 
or  an  injury  to  the  employees  ?  What  if  the  shirts  could 
not  be  sold  ? 

132.  The  conditions  of  bad  sanitation,  bad 
water,  bad  food,  ignorance,  vice  and  disease, 
characteristic  of  the  sweatshops, 
are  well  known.  Merchants  find 
it  convenient  and  profitable  to  let  the  mak- 
ing up  of  fabrics  to  the  lowest  bidder.  These 
successful  bidders,  the  sweaters,  undertake  to 
find  the  necessar}'^  laborers.     The  work,  under- 


218  EL  EM  EN  TARY  ECONOMICS 

taken  at  starvation  figures,  must  be  placed 
among  people  compelled  to  work  at  starvation 
wages.  The  fabrics  are  therefore  distributed 
for  making  among  the  ignorant  and  vicious,  in 
quarters  of  cities  foul  with  stench,  filth,  and 
disease.  The  labor  is  performed  in  garrets  and 
cellars,  or  in  sick-rooms  among  sufferers  with 
all  sort  of  contagious  ills,  where  the  uncom- 
pleted garment  may  serve  as  the  pillow  or  cover 
of  fever,  cholera,  or  smallpox.  On  the  count- 
ers of  the  great  wholesale  and  retail  establish- 
ments these  sweatshop  garments  furnish  the 
material  for  great  bargain  sales  or  attractive 
trade  discounts. 

The    notion    is   held   by   many   people    that 
the    only   thing   necessary   to   cure  this   great 

What  can  be  ^^'^^  ^^  ^^^'  ^^^^  State  to  prohibit  let- 
done?  ^jj^g  Qj,  receiving  work  at  these  low 

ligures.  It  remains,  however,  to  ask  what 
these  ignorant  and  inferior  workers  will  do  if 
prevented  from  earning  these  small  wages. 
Were  something  better  open  to  them,  it  would 
be  unnecessary  to  prohibit  this  line  of  employ- 
ment. Or,  again,  it  is  urged  that  purchasers 
should  refuse  to  buy  garments  made  at  starva- 
tion wages.  How  would  these  starved  labor- 
ers be  better  off  then?     Unless  their  product 


LABOR    OF   WOMEN  ANT)   CHILDREN      21 1> 

can   be   sold   for  little,    it   cannot   be   sold  at 
all. 

It  may  be,  however,  that  as  a  measure  of 
public  health,  the  State  should  attempt  super- 
vision and  regulation  of  the  sweatshops.  It 
is  probably  true  that  the  inmates  might  in 
many  cases  do  better-paying  work  if  they  could 
find  it,  and  would  often  find  it  if  they  were 
aware  in  a  general  way  of  its  existence,  or  if 
they  were  not  wanting  in  energy  and  self-direc- 
tion. Something  is  possible  here  through 
charity  and  education.  But  in  any  event  the 
remedy  will  have  to  begin  with  the  laborers. 
Uninformed  denunciation  of  the  system,  or  of 
the  merchant,  or  of  the  intermediate  employer 
will  do  little  good;  nor  will  the  accompanj'ing 
schemes  of  remedy  serve.  For  this  class  of 
laborers  the  choice  is  between  sweatshops  and 
something  worse. 

LABOR  OF   WOMEN  AND  CHILDREN 

133.  Courts  and  lawyers  have  established  the 
rule  that  in  case  a  parent  is  shown  to  be  affir- 
matively unfit  to  care  for  a  child,  a 

n  •  1  •     ^     1     •        1  •         Children. 

guardian   may  be  appointed   in   liis 

place.     Merely  as  a  matter  of  protection  to  the 


220  ELEMENTARY  ECONOMICS 

child,  it  becomes  justifiable,  in  some  cases,  to 
limit  or  suspend  the  usual  authority  of  the 
parent. 

The  labor  of  children  in  shops  or  factories  is 
injurious  both  positively  and  negatively  —  posi- 
tively, in  weakness  and  stunted  growth  from 
over-arduous  tasks,  negatively  in  loss  of  oppor- 
tunity to  prepare  for  the  more  important  tasks 
of  later  life.  These  conditions  of  disadvantage 
tend  to  reproduce  themselves.  When  the  child- 
laborer  matures,  he  in  turn  finds  iiimself  unable 
to  give  his  children  proper  care  and  education. 
Thus,  in  justice  to  the  unborn  children  as  well 
as  to  the  living,  some  sort  of  restriction  upon 
child  labor  is  desirable.  If  parents  are  unable, 
under  present  conditions,  properly  to  prepare 
their  children  to  live,  there  is  the  clearer 
necessity  that  the  next  generation  be  not  worse 
equipped. 

General  considerations,  therefore,  favor  state 
interference  in  these  matters.  Any  rule  must, 
however,  be  very  flexible  in  application.  Par- 
ents or  even  whole  families  are  in  some  cases 
in  considerable  measure  dependent  upon  the 
services  of  children,  where  state  aid  could  not 
be  recommended  and  would  not  be  received. 
The  self-respect  which  goes  with  independence 


LABOR   OF   WOMEN  AND   CHILDREN     221 

is  a  valuable  quantit}'.  Authority  should  exist 
to  handle  these  casus  after  their  exceptional 
character;  otherwise  the  ja-otection  of  children 
ma}'  result  in  tyranny  for  both  parents  and 
children, 

134.  The  labor  of  women  stands  economi- 
call}'  and  socially  upon  other  grounds.  Where 
women's  labor  in  shops  or  factories 

Women. 

IS  necessary  to  a  wholesome  plane 
of  living,  it  is  perhaps  to  be  regretted.  But 
that  it  is  to  be  regretted  makes  it  not  the  less 
necessary.  Especially  for  married  women  are 
the  effects  bad  in  lower  physical  tone  and  in 
neglect  of  important  home  duties. 

Whether  in  any  case  a  woman's  labor  is  neces- 
sar}-  is  probably  best  left  to  her  own  decision, 
or  that  of  her  family.  They  best  know  the 
facts  and  are  most  interested  in  the  decision. 
There  is  small  occasion  for  the  state  to  inter- 
fere otherwise  than,  as  for  other  laborers,  to 
prescribe  conditions  of  good  sanitation,  light, 
heat,  and  safety.  These  latter  matters  are  not 
well  left  to  ordinary  methods  of  adjustment. 
Competition  without  regulation  works  out  in 
this  regard  in  higher  wages  for  recklessness 
and  higher  profits  for  inhumanity. 

The   necessity   of   wage-earning   by   women 


222  ELEMENTARY  ECONOMICS 

may  well  be  regretted;  but  the  active  oppo- 
sition to  it  rests  upon  the  pernicious  fallacy, 
already  many  times  remarked,  that  the  compe- 
tition of  women  reduces  the  wages  of  men  by  an 
amount  equal  to  the  wages  of  the  women,  and 
possibly  by  more.  It  is  assumed  that  wages  are 
a  fixed  quantit}^  and  the  social  dividend  inelas- 
tic, instead  of  depending  upon  the  effectiveness 
of  productive  forces.  If  women's  labor  adds 
to  the  social  product,  it  necessarily  adds  to  the 
aggregate  of  wage  receipts  for  wage-earners  as 
a  whole.  Obviously,  however,  if  the  compe- 
tition of  women  centres  in  some  one  or  some 
few  industries,  the^  wage  level  therein  may  be 
seriously  lowered,  and,  conceivably,  the  wage 
aggregate  decreased.  Value  may  suffer  by  the 
mere  fact  of  abundance.  Utility  and  value  do 
not  run  parallel.  (Section  38.)  Wages  are 
derived  from  value. 

WAGES  OF  WOMEN 

135.  It  is  familiar  that  wages  depend  finally 
on  the  value  of  the  product.  What  employers 
can  sell  their  product  for  will  determine  how 
much  the  marginal  employers  are  able  to  pay  as 
wages,  and  how  much  competition  will  compel 
employers    in   general   to  pay.      Thus    in    the 


WAGES    OF    WOMEN  223 

measure  that  women  are  less  quick,  less  in- 
genious, less  intelligent,  or  less  versatile,  their 
wages  will  sutt'ei'. 

As  bearing  upon  the  question  of  efficiency, 
it  must  be  remembered  that  for  some  enq)loy- 
nients  women  are  distinctly  inferior 

•^  Are  women 

t(j  men  in  endurance  and  muscular  equally  vaiu- 

,  able  employees  7 

strength.  In  many  cases,  also, 
women  do  not  expect  to  remain  long  enough 
at  Avage-earning  fully  to  prepare  themselves 
therefor  or  to  enter  into  their  work  with  the 
maximum  of  interest.  But  it  is  still  true 
that  women  are  not  commonly  paid  in  })r(ip(»r- 
tion  to  their  productive  possibilities.  They 
could  and  would  produce  larger  values,  were 
they  enq)loyed  where  their  work  is  most 
productive.  Wages  in  particular  Relatively  large 
employments  may  be  permanently  „crmeanV[ow" 
low,  if  by  force  of  public  opinion  or  P™®- 
law,  or  by  lack  of  aptitude  for  other  enqdo}-- 
raents,  certain  large  classes  of  workers  are  re- 
stricted to  few  employments.  This,  taken  in 
connection  with  their  inferior  productive  ener- 
gies, is  the  explanation  of  the  strikingly  low 
average  wasfes  of  women.  If  countless  women 
go  into  shirt-making,  they  must  get,  per  shirt, 
wages  corresponding  to  tlie  low  price  at  which 


2l!4  ELEMENT xiUY  ECONOMICS 

shirts  must  be  sold  in  order  to  market  the 
wliole  product.  Prices  for  sliirts  fall  to  the 
measure  of  the  marginal  shirt,  and  wages  for 
all  shirt-makers  come  to  be  fixed  at  this  same 
margin.  There  appears  to  be  no  remedy  except 
to  decrease  the  number  of  shirt-makers,  or  to 
find  a  way  to  induce  i)eople  to  buy  the  same 
number  of  shirts  at  liigher  prices.  Higher 
prices,  if  possible,  would  then  induce  the  pro- 
duction of  still  more  shirts. 


TARIFF,    rHOTECTION,    FREE   TRADE 

Write  a  definition  of  cost  of  production. 

What  is  the  employer's  ground  for  asking  pi'otection? 

Why  cannot  lie  hire  laborers  at  low  wages? 

If  an  employer  refused  to  pay  reasonable  wages  what 
would  the  employees  do? 

Does  protection  cause  high  wages  or  result  from  high 
wages  ? 

Why  are  Australian  wages  higher  than  East  Indian? 
Compare  as  to  man  and  environment. 

What  fixes  average  wages? 

Why  not  raise  bananas  in  Canada? 

130.  It  must  ordinarily  be  best  for  men  to 
follow  the  lines  of  employment  for  which  they 

Diviaion  of  labor  ^^'^  ^^^^  adapted.  'i'his  COUrsC  con- 
is  good,  duces  to  the  maximum  social  divi- 
dend and  to  the  maximum  average  command  of 


TARIFF,  PROrECriON,  FliKK   TRADE     225 

wealth.  So  it  is  best  for  coimnuiiilies  inside  a 
nation,  or  for  nations  inside  the  community  of 
nations,  to  direct  their  energies  to  those  lines 
of  production  to  which  they  are  best  suited. 
To  prevent  any  nation  from  doing  this,  or  to 
prevent  any  part  of  the  people  within  a  nation 
from  doing  this,  requires  some  kind  of  special 
interference,  or  inducement,  or  compulsion.  In 
any  country  in  which  the  material  advantages 
are  great,  or  the  average  productive  powers  of 
the  population  high,  the  wages  will  be  high 
in  the  average,  and  it  will  require  a  system 
of  bounties  or  special  privileges  to  induce  any 
one  to  follow  an  industry  of  relatively  low 
productiveness. 

137.  Protected  industries  find  their  cost  of 
production  to  be  too  high,  in  the  sense  that 
they  are   unable  to  pay  the  wages  What  is  a  high 

-,  "^  -,         1         •      T       ,    •  1T71  cost  of  produc- 

which  other  industries  pay.  When  ^^^^-j 
the  foreign  competitor  can  hire  equally  good 
men  at  low  figures,  this  means  that  competing 
industries  in  his  country  do  not  offer  the  labor- 
ers better  opportunities  for  production  than  his 
industry  can  offer.  Where  this  is  true,  it  is 
evidently  impossible  for  an  industry  in  the 
country  with  a  higher  wage  level  to  maintain 
itself  under  free  com[)etition.     This   does,   in 


Q 


226  ELEMENTARY  ECONOMICS 

fact,  })rove  the  necessity  of  protection  if  the 
industry  is  to  exist,  but  it  also  proves  tliat  the 
industry  ought  not  to  exist.  AVhy  can  it  not 
pay  the  ruling  rate  of  Avages?  Simply  because 
other  industries  can  pay  more  than  it;  they 
produce,  per  laborer,  a  greater  sura  of  values. 
When  we  say  that  cost  of  production  is  higli, 
this  is  exactly  what  we  mean.  The  cost  of  any 
article  is  the  displacement  of  other  values  pro- 
ducible by  the  same  productive  energies.  A 
high  cost  of  production  is  a  high  displacement. 
Protective  tariff  is  usually  a  method  of  wasting 
energy  by  compelling  the  production  of  that 
which  could  better  be  purchased,  and  the  aban- 
donment of  that  which  would  better  be  produced. 
It  is  an  attempt  to  thwart  the  international 
division  of  labor.  In  effect  it  denies  the  profit- 
ableness of  trade.  It  suggests  that  it  was  a 
mistake  to  make  the  world  so  large.  It  forgets 
that  wages  flow  from  product  and  are  limited 
\)y  product,  and  assumes  instead,  that  they  can 
be  increased  by  legislation  and  legal  shu filing. 
In  forgetting  that  wages  are  a  result  of  product, 
it  is  assumed  that  high  wages  mean  a  higher 
cost  of  production  reckoned  by  the  piece,  and 
low  wages  a  low  cost,  when  in  truth  cheap  labor 
is  very  often  found  the  dearest  labor. 


TARIFF,  PROTECTION,  FREE   TRADE     227 

138.  Protection  also  commonly  overlooks 
the  fact  that  peculiarities  of  environment 
afford  special  opportunities  for  par-  „  ^  ^. 

i-  ri  1/         Protection  can- 

ticular    lines     (if     industry.        Fai'-  eels  advantages 
.    ,        ,     ,        .  ...  of  environment. 

Sighted  business  sense  will  Avork 
the  forests  and  the  fields,  Avlieii  these  are  ex- 
cellent, to  the  exclusion  of  iron  mines  which 
are  poor.  Otlier  nations  will  work  their  mines, 
allowing  their  relatively  unprofitable  agricult- 
ure to  languish.  luich  people  should  make 
the  most  of  itself  and  of  its  environment. 

In  rough  outline  this  covers  the  entire  tariff 
question,  though  we  shall  see  that  there  is  some- 
thing to  say  for  protection  under  peculiar  con- 
ditions and  as  a  temporary  policy.  But  first 
there  are  some  minor  aspects  of  the  question 
which  require  discussion. 

139.  Many  people  have  the  impression  that 
high  prices  are  a  good  thing  in  themselves. 
This  opinion  probably  rests  upon  ^^e  high  prices 
the  fact  that  in  good  times  prices  desirable? 
are  commonly  high;  it  is  therefore  inferred 
that  the  high  prices  make  the  good  times  — 
very  much  as  children  sometimes  believe  that 
the  swaying  trees  make  the  wind  blow.  As 
we  have  seen,  however,  the  expanding  credit  of 
good  times  accounts  for  the  higher  prices. 


'228  ELEMENTARY  ECONOMICS 

To  assume  tlial  liigli  prices  are  in  themselves 
a  good  thing  is  to  look  at  the  case  from  the 
point  of  view  of  the  producer  or  seller,  without 
tliought  of  what  he  can  buy  with  his  money. 

Are  low  prices  '^^^^^'^  ^^'^  '^^^o  people  who  think  low 
desirable?  prices  an  excellent  thing,  because 
then  money  bu3^s  so  much.  These  people  look 
at  the  case  solely  from  the  consumers'  point  of 
view,  forgetting  that  the  first  thing  is  to  get 
the  money  to  buy  with.  In  truth,  commodities 
cannot  all  be  relatively  high,  any  more  than 
every  tree  of  the  forest  can  be  higher  than  the 
others. 

It  is  neither  a  good  thing  nor  a  bad  thing 
for  prices  to  be  permanently  high  or  low.  This 
is  purely  a  question  of  the  volume  of  currency, 
relatively  to  the  amount  of  commodities  to  be 
exchanged.  So  when  the  protectionist  goes  to 
work  deliberately  to  bring  about  high  prices 
generally,  he  is  proceeding  upon  fallacious 
reasoning. 

140.  liut  he  sometimes  has  not  precisely  this 
purpose  in  view.  He  has  in  mind  a  scheme 
Is  it  well  to  sell  wliich  does  in  fact  tend  to  raise 
without  buying?  pHces,  but  this  is  only  incidental; 
it  is  not  his  main  [impose.  Tie  hopes  to 
arrange  things  so  tliut  [)eo[)le  shall  not  buy  so 


TARIFF,  PROTECTION,  FREE  TRADE     229 

largel}'  from  abroad  and  therefore  will  keep 
their  money  at  home.  He  expects  to  export 
as  much  as  before,  but  to  import  less.  His 
error  is  in  failing  to  see  that,  if  what  was 
before  imported  is  now  produced  at  home,  there 
will  be  correspondingly  fewer  people  to  produce 
for  export.  But  should  you  suggest  this  diffi- 
culty to  him,  he  would  probaljly  reply  that  his 
plan  would  give  employment  to  the  unemployed 
laborers,  so  that  exports  would  not  suffer. 
Somehow  he  seems  to  believe  that  a  smaller 
proportion  of  unemployed  laborers  is  to  be 
found  in  protected  countries  than  in  free-trade 
countries.     This  is  simply  not  the  fact. 

141.  But  were  there  anything  in  tliis  argu- 
ment, his  scheme  would  nevertheless  fail  wo- 
fully  for  another  reason.  Imports  j^  .^  ^^^^.^^^^  ^^ 
are  not  paid  for  in  money  but  in  ex-  sell  without 

tuyiiig? 

ports.  It  is  only  the  balance  that 
has  to  be  paid,  now  to  one  country  and  now  to 
the  other,  in  money.  So  far  as  one  nation  suc- 
ceeds in  exporting  more  than  it  imports,  there 
must  come  about  an  inflow  of  money.  This 
strikes  the  protectionist  as  very  advantageous. 
This  importation  of  mone}'  is  just  what  is 
desired.  You  may  object  that  this  will  raise 
prices.     Possibly  enough  so — and  the  protec- 


230  ELEMENTARY  ECONOMICS 

tionists  will  be  still  better  satisfied  to  find  that 
prices  will  rise.  The  people  who  like  to  see 
prices  going  up  will  be  glad  too.  This  looks 
like  a  model  system;  let  us  export  some  more 
goods  and  get  some  more  money  and  some  more 
rise  in  prices. 

But  there  is  a  difficulty.  As  fast  as  domes- 
tic prices  rise,  it  becomes  more  difficult  to  mar- 
ket goods  abroad.  And  all  the  while,  as  we 
get  the  foreigners'  money,  their  j^rices  must 
tend  to  fall  as  money  becomes  more  scarce 
with  them.  Our  system  of  selling  without 
buying  turns  out  to  cut  off  international  trade 
altogether.  In  fact  the  money,  when  we  have 
got  it,  is  of  no  particular  help  to  us  unless 
sometime  later  we  expect  to  send  it  abroad  to 
buy  things  with.  If  we  sell  to  foreignei's  we 
must  buy  from  them.  If  we  refuse  to  buy  from 
them,  and  produce  our  own  supply  instead,  we 
shall  have  little  or  nothing  to  sell  to  them; 
and  if  we  liad  something  to  sell,  they  would  be 
unable  to  buy  because  of  lack  of  money,  or  we 
to  sell  because  of  surplus  of  money. 

SnMKTIIIXG   ON   THE   OTHER   RIDE 

142.  What  has  been  said  against  protective 
tariffs  should  not  be  taken  to  apply  to  all  forms 


SOMETIIING    ON   THE    OTHER    SIDE      231 

of  taxation  u[)()ii   imports.      It  is  necessar}'  to 
raise   revenue   for  the    expenses   of  Tariffs  as 

.  .  method  of 

government.  iaxation  m  some  taxation. 
form  or  other  is  unavoidable.  So  long  there- 
fore as  duties  are  collected,  not  for  the  purpose 
of  excluding  foreign  goods  from  our  markets, 
but  for  the  purpose  of  deriving  a  revenue  from 
such  goods  as  come  in,  a  tariff  system  may 
afford  an  excellent  method  of  taxation. 

143.  But  it  is  a  mistake  to  suppose  that  by 
this  method  the  foreign  manufacturer  or  im- 
porter can  be  made  to  pay  our  taxes  ^^en  tariff  is  a 
for  us.  This  is  rarely  the  result  in  tax  who  pays  it  7 
any  considerable  degree.  In  truth,  the  importer 
is  as  likely  to  be  a  citizen  of  our  own  country 
as  to  be  a  foreigner.  But  in  either  case  the 
duty  paid  is  in  larger  part  added  to  the  selling 
price  of  the  goods,  and  is  finally  collected  from 
the  domestic  consumer. 

144.  But  admitting  this,  there  are  some  im- 
portant advantages  in  this  method  of  collecting 
taxes.     The  tax  is  easy  of  collection  and  the 
expense  is  not  large  in  proportion  to  receipts. 
There  is  also  the  advantage  that  the  is  tax  better 
taxpayer  is  usually  unconscious  of  ll^^l°^'^^  ^. 
the  fact  that  he  is  being  taxed.   This,  consciously? 
however,  is  not  an  unmixed  advantage,  since  by 


EL  EMENTA  R  T  EC  ON  OMICS 


the  very  fact  that  the  taxpayer  is  not  aware  of 
his  burden,  he  is  the  less  interested  to  see  that 
the  government  resources  are  carefully  and  eco- 
nomically expended.  That  there  is  danger  of 
extravagance  and  need  for  watchfulness  may 
be  inferred  from  the  course  of  our  national  ex- 
penditures in  the  last  one  hundred  years.  The 
following  table  shows  the  net  ordinary  expen- 
ditures of  the  government,  excluding  interest, 
together  with  the  population  and  the  per  capita 
of  expenditure :  — 


Tear. 

Population. 

EXPENDITUEE. 

Pkb 
Capita. 

1800 

.5,808,483 

^7,400,000 

1.39 

1810 

7,239,881 

.5,300,000 

.75 

1820 

9,038,822 

13,100,000 

1.36 

1830 

12,806,020 

13,200,000 

1.01 

1810 

17,069,452 

24,100,000 

1.41 

1850 

23,100,870 

37,200,000 

1.60 

1860 

31,443,321 

60,000,000 

1.91 

1870 

38,258,371 

164,400,000 

4.25 

1880 

50,155,783 

169,090,000 

3.39 

1890 

62,480,540 

261,637,000 

4.18 

1892 

64,000,000 

.321,700,000 

5.04 

1895 

G6,.50U,0(J0 

383,900,000 

5.77 

145.    So  long  as  the  tariff  works  purely  as  a 
measure    for  revenue,    not  greatly  interfering 


SOMETHING    ON    THE  OTHER    SIDE       233 

witli  the  course  of  foreign  trade,  and  particu- 
larly so  long  as  the  tariff  does  not,  -^^^g^  jg  ^^^^ 
by  excluding  foreign  goods,  necessi-  harmful? 
tate  the  existence  of  industries  Avhich  waste- 
fully  apply  our  domestic  powers  of  production  — 
that  is  to  say,  so  long  as  the  tariff  is  a  tariff  for 
revenue,  and  not  a  tariff  for  protection  —  there  is 
little  room  for  criticism.  England  has  for  many 
years  collected  by  tariffs  upon  tobaccos  and 
alcoholic  drinks  the  larger  part  of  its  revenue. 
It  is  only  when  goods  do  not  come  in  and  there- 
fore pay  no  tax  that  free-traders  are  greatly  in- 
clined to  object. 

146.  And  even  here  the  free-traders  do  not 
have  all  the  advantage  in  the  theoretical  argu- 
ment. It  is  not  true  that  protection  13  ^  then  neces- 
fails  in  theory  and  works  in  prac-  sarily  harmful? 
tice.  Just  the  contrary  is  true.  For  certain 
definite  ends,  and  strictly  limited  in  time, 
protection  is  tenable  in  theory,  although  it 
commonly,  if  not  invariably,  fails  in  i)rac- 
tice.  The  argument  for  protection,  based  upon 
the  desirability  of  stimulus  to  industries  in 
their  experimental  stages,  is  not  a  novel  one, 
and  has  long  been  admitted  by  many  free-traders 
to  be  theoretically  valid.  The  diflfieulties  inci- 
dent to  providing  machinery  and  plant   for  a 


234  ELEMENTABY  ECONOMICS 

new  industry,  to  establishing  sources  of  supj)ly 
for  raw  materials,  to  operating  the  plant  with 
labor  at  tirst  unskilled,  to  organizing  market 
connections  and  attracting  consumers'  demand, 
are  so  great  that,  though  the  industry  may  ulti- 
mately demonstrate  its  practicability  and  profit- 
earning  capacity,  it  may  also  never  requite  the 
pioneers  for  their  exceptional  outlay.  These 
original  projectors  have  no  monopoly  of  the  i^os- 
sible  success,  but  only  of  the  probable  failure. 
In  its  most  important  bearings  the  experiment 
is  of  social  rather  than  of  individual  interest, 
and  during  the  period  of  experiment  society 
may  fairly  be  called  upon  to  stand  behind,  in 
some  measure  at  least,  as  guarantor.  On  any 
other  terms  it  is  very  possible  that  capable  pro- 
jectors will  not  undertake  the  experiment. 

147.  But  on  grounds  of  experience  the  advo- 
cates of  free  trade  seem  fairly  to  have  turned  the 
Practically  and  argument.  To  admit  that  the  State 
caHy^'protection  '"'^y  profitably  interfere  is  far  from 
fail"'  admitting    that  the   interference  is 

commonly  profitable.  American  history  and 
European  history  unite  in  convicting  the  State 
of  exceeding  Htui)idity  in  selecting  the  experi- 
ments ill  w  liich  it  shall  co-o[)erate,  —  in  indicat- 
ing that  the  unsuccessful  experiment  commonly 


SOMETHING    ON    TUE  OTIIEIi    SIDE       235 

fails  of  abandonment  when  abandonment  is 
due,  and  that  the  successful  experiment  com- 
monly receives  greater  protection  in  nearly  the 
proportion  that  it  ought  to  receive  less,  —  in 
short,  that  the  system  inaugurated  to  overcome 
the  inertia  and  loss  incident  to  planting  a  new 
industry,  inevitably  develops  by  the  dark  ways 
of  politics  into  a  persistent  attempt  to  maintain 
in  existence  an  energy-wasting  failure,  or  into 
grotesque  solicitude  for  industries  grown  vigor- 
ously independent.     But  the  theory  stands. 

Note.  —  The  ordinary  student  enters  upon  the  study 
of  Political  Economy  under  tlie  impression  that  the  tariff 
question  is  tlie  main  part  of  it.  He  has  probably  by  this 
time  come  to  see  that  the  tariff  makes  no  very  large  share 
of  the  subject.  He  ought  also  to  be  prepared  to  appre- 
ciate that  in  its  purely  economic  aspects  the  tariff  ques- 
tion is  of  minor  practical  importance.  Xo  very  exhaustive 
examination  is  necessary  to  establish  this  fact. 

The  number  of  employees  in  the  leading  industries 
affected  by  protection  is  as  follows  (the  figures  are  taken 
from  the  report  of  the  census  of  1890) :  — 

Wool 219,132 

Cotton 221,585 

Silk 50,913 

Dyeing  and  finishing 20,257 

Iron  mining 38,227 

Iron  and  steel  manufacture     ....     175,506 
Fuel   for   mining  and  smelting    (esti- 
mated)   15,000 

Total 740,620 


236  ELEMENTARY  ECONOMICS 

The  number  of  bread  winners  in  the  country  is 
22,750,000.  If  then  we  compute  the  product  of  these 
protected  industries  as  nothing  —  as  all  waste  —  we  shall 
have  the  national  dividend  reduced  by  ^lUUh  or  ^k 
per  cent. 

In  fact,  however,  the  cotton  industry  almost  entirely, 
the  coarser  grades  of  wool,  and  the  mining  interests  of 
the  interior  States  are  now  independent  of  protection. 
It  is  a  liberal  estimate  to  regard  one-half  of  the  laborers 
in  these  industries  as  dependent  for  their  present  employ- 
ment on  tariff.  jMoreover,  of  tiie  laborers  who  are  really 
held  at  their  present  employment  by  the  artificial  adjust- 
ments of  protection,  not  25  per  cent  of  the  labor  energy 
is  wasted,  —  that  is  to  say,  the  present  product  is  fully  75 
per  cent  of  what  the  labor  could  be  made  to  produce 
under  free  competitive  conditions. 

I  of  ^  of  3^  per  cent  =  f  (.406)  of  1  per  cent. 
Estimating  the  average  per  capita  income  at  two  dollars 
per   day,  free  trade  in  these   leading   industries  would 
carry  tliis  income  to  something  short  of  2.01  (in  purchas- 
ing power) . 

SUGGESTR^  QUESTIONS 

What  eifect  does  the  tariff  system  have  on  the  use  of 
money  in  elections? 

On  the  bribery  of  representatives? 

On  the  wholesome  character  of  popular  thought  as  to 
the  sphere  of  government  ? 

On  the  purity  of  politics  generally? 


CHAPTER   XV 

TAXATION 

The  riglit  of  taxation  has  been  called  the  essential  fact 
of  sovereignty.     "Wliy? 

What  was  the  main  difficulty  with  the  Articles  of  Con- 
federation ? 

What  is  the  usual  cause  for  revolution  ?  How  was  it 
in  American  history? 

Where  does  the  food  come  from  which  the  judge  and 
sheriff  eat?  The  wool  that  they  wear?  Who  pay  for 
these  ultimately? 

In  what  sense  are  all  taxes  taxes  on  consumption? 

What  is  a  tax  —  not  in  terms  of  money  but  in  terms  of 
labor  or  product  ? 

Why  ought  a  good  citizen  to  be  willing  to  pay  taxes  ? 
Does  he  get  his  money's  worth?  More?  Is  it  a  good 
investment  ? 

Do  you  think  even  a  poor  government  better  than 
none?  ^Mention  the  different  ways  in  which  the  ex- 
penses of  government  retinm  to  us  in  services. 

Discuss  as  to  each  of  these  suggested  ways  whether  the 
rich  man  is  more  benefited  than  the  poor  man. 

Ought  the  rich  to  pay  more  taxes  than  the  poor? 
Why? 

Should  taxes  be  proportioned  to  wealth?  Suppose  A's 
wealth  to  be  in  a  picture  gallery;  B's  in  unoccupied  town 
lots  ;  C's  in  a  livery  stable  :   D's  in  mortgages ;  E's  in  fac- 

237 


238  ELEMEXTARY  ECONOMICS 

tories ;  F's  in  tenement  houses :   should  taxation  apply 
to  all  proportionately  ? 

Ou^ht  taxes  to  be  proportioned  to  income? 

SliouM  it  matter  that  one  has  ten  children  to  educate 
while  another  has  none,  or  that  one  spends  his  income  in 
charity  and  another  in  luxury  or  vice? 

Should  taxes  rest  especially  on  luxuries  and  vices? 

Should  taxes  l)ear  on  that  portion  of  one's  income 
which  goes  into  living  expenses  rather  than  on  that 
which  goes  into  savings  and  factories,  or  vice  versa  f 

Do  you  regard  abilities  or  benefits  as  the  proper  basis 
of  taxation? 

Who  ultimately  pays  the  taxes  on  a  stock  of  goods? 
On  imports?  On  factories?  On  machines?  On  mort- 
gages?    On  wages?     Incomes?     Land  rents? 

Which  is  the  better  method,  direct  or  indirect  taxa- 
tion ?     Mention  different  considerations. 

Should  churches  be  taxed?     Schools? 

AVhat  moral  right  has  society  to  compel  the  unwilling 
to  contribute? 

By  what  sort  of  taxes  does  the  city  get  its  revenue? 
The  State?     The  nation  ? 

Do  you  appiove  of  inheritance  taxes? 

Should  litigants  pay  all  the  expenses  of  court  proceed- 
ings ? 

148.  Almost  all  ui'  the  mistakes  of  govern- 
ment in  modern  days  are  questions  of  the 
Taxation  is  the  niiscollection  or  the  misapplication 
essential  fact  in  ^^f    Dublic    monev.       The   point  at 

modern  govern-  ^  j  i 

ment.  whicli  government  and  the  people 

come  vitally  and  seriously  in  contact  is  on  this 
question  of  what  it  all  costs.     The  tyranny  of 


TAXATION  239 

military  despots  wiLli  Uie  violence  of  armed 
hirelings,  has  mostly  given  place  to  the  regular 
processes  of  law  and  custom.  If  the  State  now 
collected  its  money  well  and  spent  it  wisely, 
there  would  be  little  occasion  to  ask  more  of  it.^ 
This  po\ver  to  tax  is  the  central  fact  in  govern- 
ment, its  source  of  life,  its  chief  power  for  ill  or 
good.  If  governments  would  but  pay  their  own 
expenses  they  might  do  almost  anything  they 
pleased.  The  citizen  is  rarely  sensitive  or  in- 
terested or  watchful  or  angry  except  as  public 
questions  are  somehow  tax  questions.  The 
State  would  be  an  empty  abstraction,  as  harm- 
less as  useless,  if  it  could  raise  no  money. 
Taxes  are  its  breath  and  life.  When,  under 
the  Articles  of  Confederation,  it  was  attempted 
to  create  a  government  without  the  power  to 
tax,  the  result  was  a  pitiful  failure. 

The  State  is  a  great  system  of  compulsory 
co-operation.       Some     people     who  „ 

■'■•'■  (Government  is 

dislike  compulsion  go  as  far  as   to  compulsory  co- 
deny  the  right  of  compelling  people    ^"^  ^°°' 

1  The  writer  has  iiol  iu  mind  to  attempt  any  tliscussiou  or 
limilatiou  of  the  proper  functions  of  the  State,  but  merely  to 
indicate  the  feelitii;  and  attitude  of  the  public  as  a  whole  and 
of  the  taxpayer  in  i)articuhir  toward  the  actual  administration 
of  public  alTairs.  Whetlier,  as  matter  of  broad  policy  or  theory, 
the  limits  of  State  activity  sliould  be  widened  or  narrowed  is  a 
question  which  tlie  writer  does  not  intend  in  this  place  either  to 
ask  or  to  answer. 


240  ELEMENTARY  ECONOMICS 

to  support  the  government.  Tliese  are  the 
anarchists.  It  is  a  sufficient  answer  to  them 
to  say  that  the  riglit  to  tax  and  the  right  to 
exist  are  one.  Society  cannot  get  along  with- 
out government  or  government  without  taxes. 

149.  But  the  fact  that  the  revenues  of  the 
State  are  obtained  by  compulsion  should  per- 
haps have  some  weight  in  deciding  what  use 
we  should  make  of  them.     If  the  taking  is  jus- 
tified by  the  necessity,  it  is  not  far- 

Whatofit?         r       ,      1  ,1 

fetched  to  say  that  the  government 
should  take  and  spend  only  where  necessity 
exists.  A  voluntary  organization  like  a  club 
may  do  some  things  with  its  dues  which  the 
State  in  good  conscience  ought  not  to  do  with 
the  taxes. 

150.  ]Many  people  fail  to  see  that  whatever 
the  government  spends  must  be  procured  at  the 
Taxes  come  out  expcnsc  of  somcbody.  In  an  indis- 
of  somebody.  tiiict  aiid  hazy  way  the  idea  is  abroad 
that  the  government  lias  some  Aladdin's  lamp 
or  miracle-box  by  the  aid  of  which,  behind  the 
curtain,  it  can  mysteriously  create  wealth.  It 
Avould  perliaps  be  well  for  us  if  this  hocus- 
pocus  method  were  really  possible,  but  it  is  bad 
to  believe  in  it,  and  liave  it  tried,  when  it 
really  will  nrit  work.     Some  one  must  pay  for 


TAXATION  241 

all   reckless   attempts    at  wealth-creating   and 
wealth-wasting. 

151.    This  is  anotlier  case  where  the  use  of 
money  obscures  the  real  facts.     The  mere  pass- 
ing of  money  from  hand  to  hand  is  whatever  is 
not  important.     The  wastes  of  kings  ^^^^^^  ^ " 
and  princes,    with  their  armies   of  consume. 
retainers    and   their  parades   and   their  wars, 
do  no  good  in  making  money  circulate,   but 
dissipate  the  labor-energy  of  the  armies,  and 
destroy  vast  supplies  of  food,  clothing,  equip- 
ment, and  stores.     In  parallel  wise,  the  spend- 
thrift, or  idler,  or  parasite  is  a  public  pest. 

Thefts  from  the  public  treas-ury  by  shifty 
politicians,  fat  profits  on  contracts,  the  army 
of  hangers-on,  loafers,  heelers,  and  ward  poli- 
ticians thrive  not  by  miracles  of  wealth-making, 
but  by  the  hard  toil  of  the  taxpayers.  It  is 
equally  true  that  the  judge,  the  policeman,  the 
fireman,  the  legislator,  the  State  and  county 
officials,  though  all  render  good  service  for 
their  salaries  and  are  worthy  of  their  hire,  live 
from  what  is  taken  from  the  living  of  the  tax- 
payers. The  flour  which  the  official  eats  will 
never  make  bread  for  the  contributor;  what 
cloth  the  judge  and  sheriff  wear  out  is  so  much 
less  to  clothe  the  rest  of  us;    the  brick  and 


•242  ELEMENTARY  ECONOMICS 

uioitar  in  the  public  buildings  will  never  build 
into  a  house  for  you  or  me.  Even  a  poor  gov- 
ernment is  better  than  none;  taxes  are  the 
most  profitable  part  of  every  man's  investment; 
officials  must  be  had  and  paid,  and  if  good  must 
be  adequately  paid;  but  governments  cost  — 
and  the  poorest  often  cost  the  most. 

152.  The  question  still  remains  as  to  how  to 
collect  the  funds  which  the  State  must  have. 
How  impose  Sliould  the  tax  be  levied  per  cai:)ita, or 
the  tax  7  should  it  be  proportioned  to  wealth, 

or  to  income,  or  to  expenditure?  If  upon 
property  or  wealth,  upon  what  kinds  ?  Should 
the  home,  the  church,  and  the  factory  be 
equally  subject  to  taxation  ? 

It  is  impossible  to  make  general  rules  which 
shall  fit  peculiar  and  special  cases.  It  is  mani- 
festly an  inequality  of  burden  to  tax  the  father 
of  a  large  family  equally  with  a  bachelor,  sim- 
ply because  the  two  men  are  equally  wealthy. 
The  one  may  readily  spare  much,  while  the 
needs  of  the  other  may  press  him  hard.  The 
man  who  rears  and  educates  a  large  family  is  by 
this  very  fact  a  heavy  contributor  to  society. 
It  is  not  ideal  that  the  wealth,  the  income  of 
which  goes  to  works  of  charity  and  philan- 
tliropy,  should  be  taxed  equally  with  that  which 


TAXATION  243 

serves  for  the  maintenance  of  extravagance  and 
vice.  Schools  and  churches  also  render  public 
service  under  other  forms  than  money.  We 
shall,  however,  find  in  later  sections  a  method 
by  which  most  of  these  inequalities  may  be 
adjusted. 

153.    (1)  As  a  practical  matter,  it  is  evident 
that  the  subjects  of  taxation  and  the 
methods  selected  should  involve  a 
moderate  cost  of  collection  in  proportion  to  the 
revenues  obtained. 

(2)  As  little  opportunity  as  possible  should 
be  given  for  shrewdness  or  dishonesty  to  avoid 
the  tax.  This  rule  applies  with  especial  force 
to  some  forms  of  income  taxation,  to  taxes 
levied  upon  inventories  made  by  the  taxpayer, 
and  to  ad  valorem  taxes  upon  imports  (duties 
levied  by  percentage  on  value). 

(3)  Taxes  should  be  levied,  as  far  as  possible, 
so  that  they  may  not  shift.  A  tax  is  said  to 
shift  when  the  person  who  seems  to  pay  the 
tax  does  not  in  reality  pay  it,  but  shoulders  it 
off  on  some  one  else.  For  example,  there  used 
to  be  a  stamp  tax  on  each  bunch  of  matches,  as 
there  is  now  on  every  box  of  cigars.  The 
manufacturer  advanced  the  tax  in  cash  to  the 
government,  but  later,  under  the  foi-m  of  sell- 


244  ELEMENTARY  ECONOMICS 

iiig  price,  shifted  the  tax  for  the  most  part 
upon  the  consumer.  Legislators  oftfen  blunder 
in  attempting  to  tax  one  class  of  people,  and 
iu  reality  taxing  another.  This  rule  against 
shifting  is  the  most  difficult  of  application  in 
the  entire  subject  of  taxation.  It  is  evident 
that  a  tax  on  production  will  in  some  meas- 
ure —  and  generally  for  the  most  part,  though 
rarely  entirely  —  be  paid  by  consumers.  Taxes 
on  interest  are  in  some  small  part  paid  by 
the  borrowers,  but  mostly  by  the  consumers  of 
the  commodities  supplied  through  the  aid  of  the 
borrowed  capital.  Likewise  taxes  on  any  form 
of  capital  rest  chiefly  upon  consumers,  since 
taxes  of  this  sort  work  like  taxes  upon  produc- 
tion. 

These  cases  illustrate  the  most  important 
principle  in  the  theory  of  taxation  —  that  any 
tax  which  modifies  the  market  price  of  products 
will,  in  some  measure,  shift.  Only  those  taxes 
which,  not  disturbing  the  relations  of  demand 
and  supply,  fail  to  produce  any  effect  upon 
maiket  prices,  are  safe  to  remain  where  placed. 

154.    Taxes  levied   directly  upon  consump- 

Do  taxes  on  con-  ti^'"'  ^^  in  proportion  to  consump- 
■nmption  shift?  tj^,,,^   ^re    somctimcs    of    the    non- 

shiftiiur  iiiid  sometimes  of  tlie  shifting  class. 


TAXATION  245 

In  fact,  as  we  have  already  seen,  all  taxes  are 
ultimately  taxes  on  consumption,  since  taxation 
is  in  substance  the  transfer  of  the  right  to  con- 
sume ;  but  taxation  ma}^  be  laid  upon  the 
whole  income  spent  for  consunij)ti()n  or  upon 
particular  articles  consumed.  Where  the  tax 
is  levied  in  proportion  to  the  entire  income, 
there  is  no  way  for  it  to  shift;  but  if  laid  upon 
particular  commodities,  the  consumption  of 
these  commodities  is  in  some  measure  discour- 
aged and  the  demand  restricted.  Values  are 
disturbed  through  disturbance  of  demand  and 
supply,  and  some  measure  of  shifting  becomes 
inevitable.  For  the  most  part  the  consumer  — 
but  commonly  in  some  measure  the  producer 
also  —  will  be  compelled  to  bear  the  tax. 
For  the  most  part  taxation  upon  monopo- 
lies does  not  shift,  since  what  was  the  most 
profitable  price  will  not  ordinarily  be  ap- 
preciably changed  by  the  imposition  of  the 
tax. 

155.  Taxes  on  rents,  or  quasi-rents  of  any 
sort,  do  not  shift,  since  they  affect  neither  the 
demand  nor  the  sunplv  <^f  products.  ^^   . 

^  J-    •  '  Do  taxes  on 

The  best  illustration  of   ibis    [ninci-  rents  and  quasi- 
,  .  rents  shift? 

pie,  and  the  most   iiii[)()rtant  ai)pli- 

cation,   is  found    in    taxes    U|))ii    land    rents. 


24»J  ELEMENTARY  ECONOMICS 

Land  at  the  luaigin  of  cultivation  pays  no 
rent,  or  at  all  events,  an  inconsiderable  rent. 
The  selling  price  of  agricultural  products  —  if 
produced  at  all  on  marginal  land  —  is  approxi- 
mately the  cost  of  production  on  this  marginal 
hind.  Therefore  to  tax  rents  would  drive  no 
land  from  cultivation,  would  attract  no  land 
for  cultivation,  and  would  modify  in  no  meas- 
ure tlie  demand  for  products  or  the  supply  of 
them  or  the  price  of  them.  It  is  largely  upon 
this  reasoning  that  the  taxation  of  land  rents 
has  been  urged  by  different  economists,  among 
whom  Henry  George  is  perhaps  the  best  known. 
It  is  argued  that  the  value  of  land  results  mostly 
from  the  growth  of  population  and  from  the 
progress  of  society,  in  railroads,  schools,  social 
privileges,  markets,  etc.  It  is  denied  that  the 
owners  or  cultivators  of  land  have  done  or  can 
do  much  to  enhance  the  value  of  their  respec- 
tive holdings.  It  is  granted  —  indeed  it  is 
urged  —  that  so  far  as  the  increase  in  value 
is  due  to  improvements  on  the  land,  as,  for 
example,  buildings,  or  clearing,  or  drainage, 
taxation  is  not  desirable,  but  it  is  asserted  that 
the  unearned  increase  —  tht;  sliai(3  of  its  value 
not  due  to  the  owner  or  his  predecessors  — 
should  be  ap[tropriated  ]>y  society  through  taxa- 


TAXATION  247 

tion.  Under  this  system  the  State  would  not 
become  hindloid  —  ownership  would  be  2)re- 
served  to  individuals — but  taxation  Avould 
absorb  for  the  State  the  larger  part  of  the  reve- 
nue of  ownership.  It  goes  without  saying  that 
as  taxation  lowered  the  owner's  revenue,  the 
market  value  of  the  land  would  proportionally 
fall. 

This  does  not  strike  one  as  fair  or  honest 
with  regard  to  the  present  values  of  land.  No 
matter  what  their  origin  may  have  been,  in- 
vestments in  land  now  represent  savings  from 
all  forms  of  human  effort.  Society  would  pos- 
sibly have  done  well  in  reserving  these  values 
to  itself,  had  it  startled  early  enough.  It 
would  probably  now  do  well,  if  it  is  practica- 
ble, to  take  steps  to  secure  to  itself  any  future 
increases  in  land  values,  and  particularly  the 
increases  which  take  place  in  urban  lands  (city 
lots) ;  but  wholesale  appropriation  of  accrued 
values  is  wholesale  robbery. 

156.  It  has  been  shown  that  taxes  on  inter- 
est mostly  shift  to  borrowers  or  to  consumers. 
By  virtue  of  this  shifting  process.  Taxes  on  inter- 
taxes    of  this  sort   often    result    in  f'^T^fT'' 

investments, 

extreme  injustice.     Commonly,  in-  etc. 

deed,    the  very  people  are  burdened  who  are 


248  ELEMENTARY  ECONOMICS 

intended  to  be  favored.  A  possessor  of  tive 
thousand  dollars  of  property,  owing  four  thou- 
sand dollars,  is  worth,  in  fact,  but  one  thousand 
dollars,  and  yet  may  have  to  pay  taxes  not 
only  upon  his  five  thousand  dollars  worth  of 
property,  but  to  some  extent,  by  way  of  in- 
creased interest,  upon  the  indebtedness  against 
it.  Jvecalling  to  mind  that  for  every  debit 
there  is  a  credit,  and  that  cancellation  of  this 
credit  relationship  would  work  no  change  in 
the  aggregate  of  social  wealth,  taxation  u^^on 
interest  is  seen  to  be  in  effect  double  taxation 
upon  wealth,  since  it  is  taxed  once  in  the  gen- 
eral wealth  and  again  in  the  credit  system. 

157.    Taxation  proportioned  to  the  benefits 
derived  from  government  would  in  great  part 

Sh   Id  t     f  1    6^6™P^  th^  "^^^T  people  best  able  to 

low  benefits  or    pay  —  those  best   able    to   dispense 

with  the  aid  or   protection   of   the 

State.     The  millionnaire  is  not  benefited  a  thou- 

jandfold  more   than  the  humble    householder. 

The  pauper  is  greatly  benefited  and  yet  pays 

tothing.     Taxation  necessarily  avoids  the  very 

poor,  else  that  which  is  taken  under  the  form 

of  tax  must  be  returned  as  public  charity. 

Taxation  according  to  ability  to  pay  would 
require  careful  examination  of  the  properties 


TAXATION  249 

owned,  whether  income  paying  or  otherwise, 
and  wonld  re(iuire  careful  account  of  the 
family  and  social  obligations  recognized  and 
fulfilled  by  the  contributor.  As  we  have 
already  seen,  the  father  of  a  large  family  does 
not  stand,  for  this  purpose,  on  a  level  with" 
the  bachelor. 

158.  And  yet,  on  the  w^hole,  the  collection 
of  taxes  according  to  ability  to  bear  the  tax, 
recommends  itself  as  the  best  ap-  income  tax  is 
proximation  to  fairness  and  practi-  ^^  ability  tax. 
cabilit3%  Burdens  are  thereby  proportioned  to 
strength.  Upon  this  line  of  reasoning  the 
income  tax  is  commonly  regarded  as  the  ideal 
tax,  to  the  extent  that  it  can  be  made  practi- 
cable in  operation.  A  progressively  higher 
rate  of  taxation  is  commonly  advised  with 
increasing  income.  Here,  again,  the  difficulty 
presents  itself  of  making  allowances  for  the 
different  uses  to  Avhich  incomes  are  put. 

Proceeding,  however,  upon  the  basis  of  in- 
come —  of  taxation  according  to  ability  —  a 
rational  and  practicable  system  is  within  reach. 

Let  it  be  recalled  that  all  taxes  are,  in  ulti- 
mate incidence,  taxes  on  consumption  (Sec- 
tion 151),  that  no  one  gets  any  benefit  of  his 
wealth  —  otherwise  than  in  the  mere  power  and 


250  ELEMENTARY  ECONOMICS 

pride  of  possession  —  till  he  comes  to  use  it. 
If,  now,  all  taxes  were  drawn  from  that  por- 
tion of  income  which  goes  to  the  consumption 
of  the  contributor,  no  philanthropist  would 
stand  under  penalty  for  his  charities.  There 
is  no  occasion  to  tax  savings  as  long  as  they 
are  represented  by  factories  or  until  they  are 
turned  by  the  owner  to  his  own  benefit.  Seed 
at  the  time  of  planting  is  best  exempt;  wait 
for  the  harvest.  If  the  owner  of  wealth  is 
taxed  prior  to  the  time  of  consumption,  he  is 
taxed  for  that  which  has  not  yet  served  him  and 
may  never  come  to  service.  This  tax,  also,  is 
certain,  in  some  measure,  to  shift. 

159.  Incomes  then  should  be  taxed  not  by 
the  measure  of  receipts,  but  by  the  measure 
Outgo  tax  is  of  expenditure  —  not  by  income  but 
ideal  tax.  \yy  outgo.     This  principle  has  been 

put  in  successful  operation  by  the  French. 
The  dangers  of  perjury,  the  premiums  upon 
dishonesty,  and  the  general  impracticability 
which  have  attended  all  attempts  at  income 
taxation  in  America,  as  well  as  the  injustices 
and  the  shifting  which  mark  income  taxation 
when  proportioned  to  receipts,  are  all  avoided 
by  adjusting  the  tax  levy  in  accordance  with 
outside    indications    of   expenditure,    for    ex- 


TAXATION  251 

ample,  upon  the  rental  value  of  the  home,  the 
amount  of  furniture,  tiie  number  of  servants 
and  of  horses.  Undoubtedly  the  S3^stem  re- 
quires skill  in  the  selection  of  leading  facts  and 
in  the  apportionment  of  their  relative  weight, 
but  amounts  in  effect  to  a  tax  on  that  portion 
of  income  expended  for  personal  uses. 

Clearly,  however,  this  system  is  not  ideal  if 
no  allowance  is  made  for  the  exemption  of 
incomes  at  or  below  the  strict  requirements  of 
life,  or  if  no  provision  is  made  for  progres- 
sive burdens  upon  larger  expenditures.  With 
these  modifications  provided  for,  this  form  of 
income  tax  burdens  the  wealthy  in  proportion 
to  their  ability  to  bear  the  burden.  Nor  is  it 
to  be  condemned  on  this  ground  as  unjust,  in 
view  of  the  fact  that  society  as  a  whole  fur- 
nishes the  organization  and  the  civilization  in 
which  alone  great  wealth  becomes  possible. 

160.    If,  however,  the  rich  are  to  be  taxed  in 
the  measure  of  their  capacity,  so  should  the 
poor.     Whatever  is  spent   for  vice  ^^^^^  ^^^  ^^ 
or  luxury  in  any  stratum  of  societv,  ^'^^  poo^  accord- 

.     1         1         r  1  .     T         '      iDg  to  ability, 

IS  by  that  fact  proved  not  indispen- 
sable.    Here  is  an  opportunity  to  tax  the  poor 
to  their  benefit,  or  at  all  events,   to  no  great 
injury  or  burden.      Here  is  the  theoretical  and 


252  ELEMENTARY  ECONOMICS 

practical  jiistilicatioii  for  exceptionally  high 
taxes  levied  in  England  and  America  on  alco- 
holic drinks  and  tobacco.  All  of  these  taxes 
may  be  avoided  by  abstention  from  consump- 
tion. Should  tax;ation  of  this  sort  seem  to 
savor  too  much  of  paternalism  and  sumptuary 
legislation  —  if  it  is  objected  that  there  is  too 
great  room  here  for  mistaken,  or  extreme  meas- 
ures —  the  answer  is  that  the  State  must  follow 
what  light  it  has.  Taxes  must  be  collected; 
they  fall  of  necessity  upon  one  sort  of  con- 
sumption or  another;  the  State  is  in  duty 
bound  to  collect  its  revenues  with  as  little 
harm  as  possible. 

161.  Succession  or  inheritance  taxes  have 
been  much  discussed  of  late  years.  Upon  the 
death  of  a  rich  man  his  property  passes  to  those 
who  have  not  earned  it,  whose  usefulness  in 
society  is  not  certain  to  be  increased  by  the 
receipt  of  it,  and  whose  claim  to  it  as  against 
Inheritance  socicty  Is  uot  entirely  clear,  in  view 
taxes.  Qf  ^]^e  fj^g^  i\^r^^  society  has   had  a 

much  larger  share  than  tlie}'  in  the  creation  of 
it.  It  is  an  added  advantage  that  the  tax  is 
not  felt  as  a  great  burden  by  those  whose  gains 
come  to  them  as  pure  good  fortune.  There  is, 
of  course,  danger  that  the  tax  be  placed  so  high 


TAXATION  253 

as  to  stimulate  evasion  by  gifts  before  death. 
Partly  in  view  of  this,  it  is  generally  advised 
to  fix  the  rate  low  for  cases  where  the  property 
goes  to  wives  or  children,  and  higher  as  the 
amount  is  greater  or  as  the  property  goes  to 
more  distant  relatives. 

This  method  of  taxation  would  be  produc- 
tive of  large  revenues  and  appears  to  have 
many  advantages.  It  is,  however,  by  many 
thinkers  vigorously  condemned  (1)  as  weaken- 
ing the  motives  for  saving;  (2)  as  interfering 
with  the  owner's  right  to  do  as  he  will  with 
his  own;  (3)  as  partaking  of  class  legislation 
or  of  socialistic  tendencies. 

1G2.  Under  our  form  of  government,  income 
taxes  should  probably  be  collected  by  the 
national  government,  as  should  also  taxes  on 
alcoholic  drinks  and  tobacco,  as  far  as  they  are 
levied  under  the  form  of  tariff  or  of  taxes  on 
production.  Inheritance  and  land  taxation, 
and  all  forms  of  taxation  upon  consumption 
by  license  methods,  are  probably  best  placed 
with  State  and  local  governments- 
It  is  worth  noting,  as  a  matter  of  experience, 
that  taxation  upon  personal  property,  as  admin- 
istered in  America,  is  impracticable,  consis- 
tently with   justice,   and  commonly  fails,   for 


254  ELEMENTARY  ECONOMICS 

the  most  part,  of  enforcement.  In  almost  all 
communities,  and  especially  in  the  newer 
communities,  land  taxation  affords  nearly  the 
entire  revenue.  Unfortunately,  however,  no 
distinction  is  made  between  land  and  im})rove- 
ments. 

SUGGESTI\^  QUESTIONS 

Compare  the  tax  bill  with  that  of  the  grocer. 

Ought  the  right  to  vote  to  depend  in  any  way  upon 
property  or  to  be  influenced  by  it? 

How  does  taxation  differ  from  robbery  ? 

Wh)'  do  anarchists  object  to  taxation  ? 

What  was  Rousseau's  theory  of  the  social  contract  ? 

Ought  public  funds  to  be  used  for  Fourth  of  July 
celebrations? 

What  is  a  poll  tax  ? 

Are  taxes  better  direct  or  indirect  ? 

Is  it  wise  to  assist  private  educational  institutions  with 
public  funds? 

Suppose  A  has  !B100,000  all  invested  in  real  estate 
mortgages,  upon  how  much  is  he  taxed  ? 

Can  he  shift  this,  in  part,  upon  some  one  else? 

Suppose  he  himself  owes  810,000  to  the  bank ;  will  this 
be  deducted  from  the  amount  upon  which  he  is  taxed? 
Ought  it? 

Suppose  you  own  a  farm  worth  .f  5000  and  owe  A  ^4000 
toward  the  purchase  price;  what  is  your  net  wealth? 
On  how  much  do  you  pay  taxes,  —  .^1000,  iBoOOO,  |8000, 
or  aOOOO? 

Are  all  who  are  taxed  citizens?    Ought  all  to  be? 

Are  criminal  courts  of  service  to  those  who  never  have 
litigation  ?     How  about  civil  courts? 


TAXA  TIOjY  255 

What  harm  in  taxing  the  grain  which  makes  the  flour? 
Why  better  tax  the  flour  ? 

Is  tariff  taxation  sufliciently  near  to  the  point  of  con- 
sumption?    Is  it  economical  of  collection? 

Does  it  place  unusual  premiums  on  dishonesty? 

Does  it  bear  in  desirable  proportions  upon  rich  and 
poor? 

On  what  classes  does  taxation  on  whiskey  or  tobacco 
fall? 

Is  this  better  than  an  income  tax? 

On  what  classes  does  the  income  tax  mostly  fall? 

What  do  you  say  of  the  expediency  of  limiting  taxa- 
tion to  two  forms,  —  an  income  tax  for  the  rich,  a  luxury 
'ind  vice  tax  for  both  rich  and  poor  ? 

Would  you  add  to  this  a  land  tax,  or,  more  properly, 
a  rent  tax  ?    , 

Is  an  income  tax  best  levied  on  the  basis  of  income  re- 
ceived or  of  income  expended? 

The  French  assess  their  income  tax  on  the  basis  of  a 
few  leading  indications  of  the  expenses  of  living,  —  rental 
value  of  house,  amount  of  furniture,  number  of  servants, 
etc. ;  what  do  you  say  of  this  ? 

Is  it  true  that  "  tariff  is  a  tax  "  ? 

Is  it  true  that  the  foreigner  pays  the  import  duty  ? 

Do  producers  or  consumers  pay  charges  of  transpor- 
tation ? 

Do  producers  or  consumers  pay  the  profits  of  specula- 
tors? 

Do  lenders  or  borrowers  pay  for  the  risk  element  in 
the  loan  ?    Do  consumers  ultimately  pay  any  part  of  this  ? 

Does  a  tax  on  land  by  the  acre  fall  on  landlords? 
Tenants?     Consumers? 

Who  would  pay  a  percentage  tax  on  rents  ? 

On  whom  does  a  tax  on  residence  proj^erty  fall? 

Where  does  a  tax  on  a  factory  finally  fall  ?    A  tax  ou 


250  ELEMENTARY  ECOXOMICS 

mortgages?  On  railroads?  On  dividends?  On  rail< 
road  stocks? 

What  do  you  think  of  a  succession  tax  (tax  on  inheri- 
tances) ? 

Should  taxation  on  incomes  be  progressive  ? 

Should  taxation  on  public  franchises  be  progressive  ? 


CHAPTER   Xyi 

CONSUMPTION,    STANDARDS  OF   LITE,   AND 
FASHION 

163.  In  ancient  times  it  was  a  question 
earnestly  discussed  by  the  logicians  whether 
chickens  came  before  eggs  or  eggs  before  chick- 
ens. Something  like  this  puzzle  is  met  in  try- 
ing to  decide  whether  demand  precedes  supply 
or  supply  demand  —  whether  desire  goes  before 
production  or  production  before  desire.  It 
seems,  on  the  one  hand,  to  go  without  saying, 
that  no  one  would  set  himself  to  produce  a 
thing  unless  he  wanted  it  when  produced.  He 
might  of  course  produce  it  to  sell,  but  would 
care  to  sell  only  as  he  cared  for  the  thing  which 
lie  would  get  in  return. 

1G4.    But,  on  the  other  hand,  how  sliall  one 
come  to  desire  what  he  has  never  had?     Use 
must  precede  habit.     It  is  easy  to  which  is  pn- 
go    without    that    which    one    has  ^i^^^^;, 
never  learned  to  want.      One  gets  consumption? 
enmeshed  in   the  same  sort  of   logical  tangle 
s  257 


L*58  ELEMENTARY  ECONOMICS 

in  attempting  to  decide  Avhicli  existed  first, 
Libor  or  capital.  Fortunately  it  doesn't  much 
matter.  So  with  demand  and  supply;  they 
ai"e  not  precisely,  inseparable,  but  never  very 
widely  part  company.  Which  came  first  in 
the  begfinninor  of  luiman  life  we  need  not  ask. 
For  modern  men  it  is  true  that  that  which  we 
are  accnstomed  to  we  desire,  and  finally  come 
more  or  less  acutely  to  need.  We  desire  also 
better  things  of  the  sort  we  have  had,  and  more 
of  them,  and  we  find  our  desires  extending  to 
still  other  and  different  things,  if  only  they  are 
not  too  different.  But  inasmuch  as  men  gener- 
ally have  to  work  for  what  they  get,  and  early 
or  late  in  the  day  find  wf)rk  a  drag  or  a  burden, 
it  comes  about  that  we  stop  work  before  all  our 
wants  are  fully  satisfied.  Our  desires  thus 
always  outrun  our  supplies,  wherever  supply 
does  not  come  as  a  free  and  unlimited  gift. 
Men  work  till  the  pain  of  more  work  out- 
weighs the  pain  of  unsatisfied  want.  It  is 
therefore  only  desire'  that  induces  effort  with 
its  resulting  product;  but  this  resulting  prod- 
uct is  in  turn  a  cause,  fixing  the  desire  and 
slowly  establishing  the  need,  wliile  it  also 
slowly  opens  the  way  to  a  wider  sweep  of  need 
and  desire. 


CONSUMPTION  259 

Evidently  enough,  consumption  must  adapt 
itself  to  production,  though  it  is  equally  clear 
that  consumption  furnishes  the  motive  for  pro- 
duction. That  the  savage  in  the  African  bush 
is  a  man  of  few  desires  and  simple  necessities  is 
the  larger  part  of  his  good  fortune.  His  sur- 
roundings might  possibly  suffice  for  a  larger 
life,  if  he  had  the  physical  and  mental  equip- 
ment to  turn  his  opportunities  to  his  advantage. 
Lacking  the  different  forms  of  inner  power,  he  is 
fortunate  in  his  lack  of  desire.  But  in  tlie  last 
analysis  it  is  the  lack  of  ability  to  satisfy  the 
desire  which  explains  the  absence  of  the  desire. 

The  broad  proposition  toward  which  all  this 
tends  is  that  desires  are  strong  approximately 
as  realization  is  within  the  horizon  of  possibility. 
In  more  common  phrase,  the  standards  of  living 
or  of  comfort  in  any  society  will  be  fixed  by  its 
productive  efficiency. 

165.  We  shall  shortly  return  to  examine  this 
proposition  more  closely  in  its  relations  to  the  in- 
dividual. But  societies,  at  any  rate.  The  expansive- 
do  not  greatly  desire  what  they  have  "^^^  °^  desires. 
never  had.  The  existence  of  the  desire  is  the 
evidence  that  its  satisfaction  is  not  unknown. 
Patagonians  are  said  to  sleep  naked  on  frozen 
ground   with   hoar  frost  for    blankets.     Harsh 


260  ELEMENTARY  ECONOMICS 

conditions  grow  bearable  by  use.  This  is 
merely  another  aspect  of  correspondence  —  of 
adaptation  to  environment.  And  yet,  as  we 
have  seen,  all  this  is  consistent  with  expan- 
siveness  in  needs  and  desires.  The  Patagonian, 
having  accustomed  himself  to  cold  nights  with- 
out bedding,  would  doubtless  find  himself 
uncomfortable  under  heavy  blankets,  yet  would 
take  kindly  to  light  coverings,  if  they  were  to 
be  had  for  the  asking,  and,  once  accustomed  to 
these,  would  be  glad  of  more.  There  is  always 
this  unsatisiied  margin  of  desire.  If  the  blan- 
kets become  sulficient  in  quantity,  there  is 
indefinite  room  for  expansion  in  quality.  Eacli 
fulfilment  brings  its  new  margin  of  demand. 
The  need  for  protection  rises  by  successive 
stages  from  huts,  straw  pallets,  and  coarse  furs, 
to  palaces,  canopied  couches,  and  eider-down 
covers. 

Keep  constantly  in  mind,  however,  that  this 
process  of  development  is  slow.  Desire  and 
satisfaction  are  bound  closely  together,  each 
gaining  by  littles  ihiough  the  other.  Demand 
grows  only  by  what  it  feeds  upon,  like  potatoes 
or  fire  or  opinm-eating.  Tiiere  is  no  utility 
until  there  is  a  corresponding  need;  and  with 
any  society  the  alnlity  to  enjoy  never  gets  very 


CONS  ITMP  TION  261 

wide  of  the  ability  to  produce.  A  few  years 
ago  the  United  States  government  l)uilt  eacli 
brave  of  the  Pawnee  nation  a  house.  P]ach 
brave  set  up  his  teepee  by  the  side  of  tlie 
house,  put  his  ponies  in  the  house  and  himself 
in  the  teepee.  The  government  asked  too  much 
of  the  Indian's  expansiveness  of  desire;  it 
overshot  the  mark.  A  little  better  teepee 
would  have  been  a  better  present.  These 
things  do  not  move  by  large  leaps. 

In  the  expansiveness  of  human  desires  is 
found,  for  the  temperate  zones,  the  certitude  of 
human  progress  and  the  security  against  stag- 
nation of  effort;  in  the  slowness  of  expansion  is 
discovered  the  secret  of  the  indolence  and  inef- 
fectiveness characteristic  of  human  life  in  the 
tropics,  where  the  bounty  of  nature  so  far  out- 
runs desires  as  to  discourage  effort.  The  same 
explanation  applies  in  reverse  order  to  the  polar 
regions,  where  the  disproportion  between  effort 
and  its  rewards  often  discourages  all  activity 
other  than  that  essential  to  mere  existence. 

166.    But  is  all  of  this  true  for  individuals 
as  well  as  for  races?     Yes,  and  no.  j^^^^  ^^^.^  ^^^^^ 
It  is  true  of  the  primary,  the  physi-  to  the  individ- 
cal  requirements  —  the  need  of  food, 
clothing,  and  shelter.    Expansiveness  is  espe- 


lit'.L'  ELEMENTARY  ECONOMICS 

cially  slow  here.  It  is  true  even  in  the  higher 
desires,  in  the  realm  of  mind  and  thought  —  of 
music,  poetry,  and  art,  where  satiation  does  not 
come  and  appetites  do  not  fail,  but  rather  grow 
with  use.  But  what  are  we  to  make  of  the  fact 
that,  as  applied  to  men  separately,  many  com- 
modities are  prized  not  merely  in  proportion  to 
their  scarcity,  but  because  of  their  scarcity  — 
diamonds,  for  example?  That  which  becomes 
common  often  seems  to  lose  its  savor;  perhaps 
we  should  feel  the  loss,  but  it  is  somehow  our 
harsh  case  that  we  realize  the  value  only  in  the 
want.  In  daily  life  you  and  I  appear  to  desire 
most  vigorously  that  which  we  cannot  have, 
and  yet  to  care  wondrous  little  for  the  thing  if 
we  finally  get  it.  This  is  bad  —  looks  bad  for 
our  theory,  too. 

Something  more  needs  to  be  said.  It  is  the 
penalty  of  any  unworthy  desire,  not  only  that 
its  pleasures  endure  but  for  a  season,  but  also 
that  in  each  attainment  there  is  hidden  its  own 
peculiar  disappointment.  The  pleasure  is  not 
what  we  thought  it  would  be;  only  the  skin  of 
the  apple  liad  the  glowing  color;  there  was 
more  advertised  on  the  show  bills  than  was  ex- 
hibited in  the  tent.  All  goods  which  get  their 
value  t(;  us  merely  Ijy  virtue  of  the  fact  that 


STANDARDS   OF  LIFE,   AXD  FASHION      268 

others  have  tliera,  or  have  them  not,  or  think 
we  ought  to  have  them,  are  of  this  delusive 
sort. 

167.  Human  desires  may  be  broadly  classi- 
fied accordingly  as  they  have  to  do  primarily 
and   directly  (1)  with    self  or  (2)  t^. 

^     ^    y  \    y   Diaappointing 

with  fellow  beings.     We  may  term  and  non-disap- 
these  desires  (1)  personal,   (2)  so- 
cial.      There    is    a    lower    and    a   higher    in 
each. 

Within  the  personal  class  must  be  included 
the  desires  for  food,  shelter,  and  clothing  —  the 
needs  which  go  with  the  protection  of  life  and 
to  which  we  are  subject  through  our  phj^sical 
necessities.  These  are  the  needs,  differing 
only  in  degree,  which  we  share  with  all  animal 
life.  Within  this  class  also  are  the  desires 
which  go  with  the  distinctively  higher  and 
human  development  in  intellect  —  the  thought- 
ful aspirations  and  interests,  the  literary,  scien- 
tific, artistic,  and  musical  tastes  and  loves. 
These  endure  not  for  a  season  merely.  "  Other 
interests  are  not  suited  to  all  times  and  seasons 
and  places,  but  these  serve  as  the  grace  of  youth 
and  the  consolation  of  old  age,  as  ornament  for 
prosperity,  as  refuge  and  solace  in  ill  fortune, 
a  delight  at  home  and  a  refreshment  in  the  out- 


264  ELEMENTARY  ECONOMICS 

side  turmoil ;  these  are  with  us  ahvays  —  in  our 
nightl}' vigils,  in  our  wanderings,  at  our  country 
firesides  "  (Cicero).  We  have  no  need  to  con- 
demn the  ever3'^day  life  of  bread-winning,  its 
needs  and  interests  and  rewards.  All  better 
living  depends  upon  being  able  to  live,  and  for 
all  higher  personal  and  social  ends  it  is  funda- 
mental that  we  live  honestly  and  by  the  right 
of  effort.  But  in  the  things  of  thought  there 
normally  goes  no  disappointment,  failure,  or 
waste  —  no  limit  upon  appetite  —  no  disgust 
from  satiation. 

In  the  desires  which  primarily  regard  others 
there  is  likewise  a  lower  and  a  higher,  which 
we  will  term  (1)  the  social  and  (2)  the  un- 
social, in  the  sense  of  the  helpful  and  the  non- 
helpful.  With  these  also  there  go  on  one 
side  decay  and  disappointment,  on  the  other, 
increase  and  abiding  joy.  Whatever  brings 
l)leasure  at  another's  loss  or  pain,  hides  within 
itself  its  own  limitation  and  its  ultimate  de- 
struction. It  is  like  the  rose  with  a  worm  at 
the  heart.  It  is  only  the  pleasure  of  doing 
good  which  surprises  by  its  greatness  and  com- 
pleteness. And  so  we  return  with  a  new 
meaning  to  our  earlier  words:  "Those  goods 
which  get  their  value  to  us  merely  by  virtue  of 


STANDARDS   OF  LIFE,   AND   FASHION      2Go 

rhe  fact  that  others  have  them,  or  have  them 
not,  are  of  this  delusive  sort." 

168.  Tlie  most  important  application  of  this 
principle  is  to  the  consumption  of  wealth  in 
ostentation  and  display  —  in  what  may  be 
broadly  termed  competitive  show.  After  the 
neat  and  comfortable  is  attained,  expenditure 
in   style,    or   fashion,    or   elegance, 

.  Ostentation, 

ordinarily  carries  with  it  no  great 
gratification,  otherwise  than  in  the  unworthy 
consciousness  of  being  admired  or  envied. 
Socially  this  outlay  is  waste  or  worse  than 
waste.  Each  expends  because  others  expend, 
and  no  one  is  the  gainer.  Thus  material 
progress  in  the  way  in  which  we  use  it,  — 
material  progress,  so  far  as  it  is  directed  to 
competitive  show,  —  cancels  itself  in  a  strife 
for  precedence;  thereby  we  not  only  waste  the 
product  of  our  own  energy  by  an  automatic 
method  of  cancellation  by  averages,  but  in 
wasting  our  own  share  of  product,  we  make, 
by  comparison,  our  neighbor's  share  poor  and 
mean  and  insudicient.  We  rob  ourselves  and 
yet  filch  from  him.  There  is  no  share  of  gain 
in  it  for  any  one  that  does  not  stand  for  dis- 
content and  envy  for  some  one  else. 

The  first  law  of  ostentation  is,  tlien,  this  — 


26»>  ELEMENTAEY  ECONOMirS 

that  all  ostentation  is  waste;  the  second  law, 
that  the  luxury  of  the  rich  not  merely,  in 
some  slight  degree  through  waste,  causes,  but, 
through  discontent  and  by  the  method  of  com- 
parison, is  the  poverty  of  the  poor. 


CHAPTER   XVII 

CONCLUSION  • 

169.  With  the  increase  of  knowledge  in  the 
modern  world,  with  its  advance  in  intellectual 
acquirement,  its  multiplied  powers  over  the 
resources  of  nature,  its  new  methods  and  new 
arts,  its  inherited  wealth  of  achievement  and 
unlimited  promise  of  progress,  there  have 
grown  up  the  new  needs  and  the  new  desires 
which  attach  themselves  to  human  life  as  the 
capacity  for  fulfilment  increasingly  falls  within 
human  reach.  That  the  desires  of  men  are 
safe  to  outrun  their  accomplishment  ^^  ^ 

'-  Wnat  opportu- 

has  been  sufficiently  shown.      It  is  °ity  does  the 

-  •  1  1  world  offer  to 

therefore  certain    that   there   never  the  young  man 
has   been    or   can    be    a   surplus   of  °^y°^s 

■t  woman? 

production  over  the  ability  to  con-  Are  all  things 

overdone  7 

sume.       In     the    long     adjustment 
markets  will  never  fail  the  factory;  new  inven- 
tions and  more  effective  machinery  must  for- 
ever  remain    the    welcome    auxiliaries    of   hu- 
man effort  —  the  facile  servants  of  new  wants. 

267 


268  ELEMENTARY    ECONOMICS 

Each  human  being  born  to  the  world  adds  a 
further  demand  to  its  markets  as  well  as  an 
increase  of  energy  to  its  productive  power. 
There  may  be  over-production  in  some  one 
or  some  few  directions,  but  only  in  the  sense 
that  the  production  is  disproportionate  to  the 
output  of  other  commodities,  and  thereby 
entails  a  loss  upon  those  producers  who  have 
been  mistaken  in  their  estimates.  Low  prices 
to  the  producer  mean  cheap  consumption  to 
the  consumer.  When,  as  a  result  of  finan- 
cial disturbance,  or  flurr}'-,  or  panic,  factories 
close  and  men  fall  to  idleness  and  want,  the 
evil  in  its  very  nature  is  one  of  need  and  not 
of  surplus.  That  nation  or  that  individual 
whose  normal  condition  is  want,  and  whose 
chronic  disease  is  poverty,  suffers  by  the  very 
fact  that  in  the  environment  as  it  exists,  and 
with  the  abilities  possessed,  it  is  impossible 
adequately  to  solve  the  problem  set  by  neces- 
sity. There  is  not  too  little  but  too  much 
work  to  do.  Wages  are  low  because  of  small 
per  capita  product. 

It  follows  that  to  suppose  that  there  is  in- 
creasing difficulty  in  finding  a  place  and  obtain- 
ing a  foothold  in  the  world,  is  to  misunderstand 
the  conditions  of  modern  society,  and  to  misin- 


CONCLUSION  269 

terpret  the  opportunities  of  modern  life.  The 
opportunities  are  yearly  not  less  but  more,  the 
demand  not  smaller  but  greater,  the  remunera- 
tions not  increasingly  meagre  but  increasingly 
generous.  When  we  are  told,  as  we  constantly 
are,  that  the  professions  are  crowded  and  busi- 
ness everywhere  overdone,  that  the  clerkships 
will  not  go  around,  and  that  the  applicants  are 
more  than  the  places,  Ave  may  safely  judge 
that,  in  so  far  as  this  is  true,  it  means  that  the 
things  which  men  most  desire  to  do  are  not  the 
things  most  desired  to  be  done.  It  is  possible 
to  have  too  many  doctors,  lawyers,  ministers, 
and  teachers.  Until  half  the  demand  of  the 
world  is  for  doctoring,  preaching,  teaching,  and 
advising,  it  will  not  be  possible  for  half  the 
po[)ulation  of  the  world  to  be  dignified  mem- 
bers of  the  learned  professions.  The  salesmen 
in  the  shops  and  the  commercial  travellers  on 
the  road  must  bear  some  sort  of  proportion  to 
the  goods  which  are  to  be  marketed.  So  long 
as  every  lad  especially  voluble  or  quarrelsome 
believes  himself  to  be  set  apart  for  the  law, 
every  quiet  and  earnest  youth  for  the  ministry, 
and  all  boys  wanting  in  noticeable  qualities  of 
any  sort  for  the  medical  profession  or  for  teach- 
ing, it  is  certain  that  some  of  these  professions 


270  ELEMENTAIiY  ECONOMICS 

will  be  overdone.  Tlie  supply  in  these  lines 
readil}'  outruns  the  demand. 

There  need  be  no  Lick  of  hope  or  effort 
because  of  this  —  there  is  always  demand  for 
the  best;  but  it  is  well  to  face  the  fact  that 
the  demand  is  a  limited  demand,  and  that  the 
places  of  social  glitter  and  learned  dignity 
cannot  suflice  for  every  high  school  giaduate 
and  every  holder  of  a  college  degree.  There  is 
room  for  every  worker  only  on  condition  that 
he  is  willing  to  do  the  work  which  is  waiting 
to  be  done.  In  the  breaking  down  of  caste  and 
class  distinctions,  in  the  popular  institutions 
of  this  modern  era  with  its  wide  and  free  com- 
petition, there  is  abundant  place  for  ambition 
alid  ability  and  unlimited  room  for  lives  of  use- 
fulness; but  it  does  not  follow,  and  it  is  not 
true  that,  with  the  rising  level  of  popular  intel- 
ligence, and  with  the  magnilicent  offer  to  rich 
and  poOr  alike  of  advanced  and  thorough  edu- 
cation, there  can  go  with  every  case  of  liberal 
training  a  place  of  precedence  and  foitune. 
There  is  no  lack  of  demand  for  skilled  laborers 
and  capable  artisans.  There  is  plenty  of  room 
for  honest  and  respectable  service,  but  not  for 
choice  or  elegant  service. 

This  truth  holds  for  ricdies  as  for  position. 


CONCLUSION  -71 

The  possibility  of  a  reasonable  competence,  in 
the  sense  of  independence  and  freedom  from 
want,  exists  for  each  and  all.  Wealth, '  how- 
ever, is  relative,  and  is  therefore  in  its  very 
nature  exceptional. 

170.  There  is  danger  that  from  the  almost 
exclusive  attention  of  Political  Economy  to 
the  phenomena  of  wealth-production  .^^^  ^-^ 

and    wealth-distribution,   the  truth  are  best  worth 

getting  7 

may  come  to  be  obscured  that  the 
purpose  of  living  is  something  more  and  some- 
thing better  than  either  position-getting  or 
wealth-making.  It  must  be  constantly  held 
in  mind  that  wealth  is  at  best  only  a  means 
to  an  end.  Political  Econoni}'  does  not  pur- 
port to  be  the  whole  science  of  living.  A 
full,  symmetrical  life  rightly  lived  is  the 
rational  purpose  of  all  effort.  Political  Econ- 
omy makes  many  important  additions  to  our 
knowledofe  of  social  relations  and  social  duties. 
But  that  you  have  learned  something  of  the 
methods  and  laws  of  trade  and  legislation  does 
not  involve  the  proposition  that  human  life,  its 
values,  its  purposes,  and  its  success,  are  to  be 
subjected  to  trade  standards  or  measured  by 
them. 

The  best  thincfs  in  life  are  not  found  in  the 


272  ELEMENTARY  ECONOMICS 

markets  —  cannot  be  bought  and  sold.  Success 
in  life  is  not  merely  to  die  rich.  Wealth  is 
only  one  of  the  good  things,  it  is  not  the  best 
thing;  it  may,  indeed,  not  be  a  good  thing. 
Made  to  measure  success  or  to  furnish  the  basis 
of  social  precedence,  wealth  may  vitiate  all 
social  progress.  That  land  fares  ill  in  which 
materialism  has  become  the  social  faith,  in 
which  politics  has  become  a  great  game  of 
business,  where  great  fortunes  command  politi- 
cal victory  and  where  victory  commands  great 
fortune.  Tlie  scramble  for  wealth  may  become 
a  disease  and  multiply  diseases.  Individual 
contentment,  social  safety,  and  race  survival 
do  not  lie  of  necessity  and  always  along  this 
line.  Material  progress  is  a  good  thing  only 
when  it  serves  for  higher  ends,  never  when  it 
displaces  them.  To  forget  this  truth  in  the 
pursuit  of  wealth  is  "as  if  a  man  journeying 
home  and  finding  a  good  inn  upon  the  road,  and 
liking  it,  were  to  stay  forever  at  the  inn.  Man, 
thou  hast  forgotten  thine  object;  thy  journey 
was  not  to  this  but  through  tliis  "  (Epictetus). 

This  outlook  upon  life  is  not  a  hopeless  one; 
but  even  wore  it  so,  truth  is  truth,  and  clear 
tliinkinjr  will  face  it.  That  in  tlie  commercial 
sense,  and  according  to  prevailing  standards, 


CONCLUSION  273 

most  of  us  are  born  to  fail,  linds  its  consolation 
in  the  fact  that  life's  highest  puri^oses  and 
sufficing  pleasures  lead  us  otherwhere. 

In  truth,  if  well-being  were  only  to  be  found 
in  wealth,  if  plain  living  and  high  thinking 
could  not  sulHce  for  hup[)iness,  the  lot  of  man 
would  be  indeed  a  harsh  one.  The  places  of 
leadership  are  of  necessity  few;  commanders 
are  such  only  as  there  are  followers.  "Power 
finds  its  place  in  lack  of  power."  These  things 
are  relative ;  there  are  a  hundred  privates  for 
one  captain,  liuudreds  of  wage-earners  to  one 
factory-owner.  It  is  not  in  the  nature  of 
things  that  the  many  lead;  it  would  then  be 
an  ill  world  in  which  only  the  leaders  could 
be  glad. 

171.  It  follows  from  all  this  that  your  years 
of  study  are  not  rightly  to  be  devoted  to  a 
preparation  for  getting  rich,  or  for  what  is  the  pnr- 
acquiring  honors  of  profession  or  pose  of  culture  7 
place,  but  rather  to  acquiring  fitness  for  what- 
ever duty  or  opportunity  may  present  itself. 
Make  yourself  ready  for  usefulness.  Do  not 
allow  the  zeal  to  be  earning  something  to  lead 
you  half-educated  into  a  position  as  clerk  or 
errand-boy;  this  is  to  gain  unfitness  for  the 
more   enduring   tasks    and   the   greater  oppor- 


274  ELEMENTARY  ECONOMICS 

tunities  to  come.  Distrust  all  schemes  of  edu- 
cation which  are  called  practical.  Only  in  the 
broader  and  higher  sense  should  school  train- 
ing be  useful  —  never  in  a  narrow  meaning  of 
trades  and  book-keeping  and  shorthand.  See 
to  it  for  yourself,  and  see  to  it  one  day  for 
your  children,  that  the  money-chasing  mania 
does  not  cast  its  blight  over  all  the  years  and 
discipline  of  youth.  No  matter  how  hard  we 
may  strive  that  it  be  not  so,  the  interests  of 
bread-winning  and  of  socially  imposed  place- 
hunting  are  certain  to  occupy  us  overmuch. 

A  new  notion  of  the  meaning  of  education 
needs  to  be  adopted,  and  a  saner  measure  of  the 
importance  and  advantage  that  attach  to  it. 
With  this  new  perspective  there  may  come  about 
for  pupils  and  instructors  a  more  rational  spirit 
in  education.  If  the  schools  succeed  in  fixing 
upon  the  student  a  false  estimate  of  his  sphere 
and  duty  in  life,  if  the  student  emerges  from 
the  school  with  a  distorted  estimate  of  his  indi- 
vidual importance,  with  a  sense  of  unfitness  in 
attempting  the  common  lines  of  bread-winning, 
with  distaste  tlierefor  and  with  certain  discon- 
tent therein,  he  is  not  well  ])ut  ill  prepared  for 
the  life  which  he  must  lead,  and  society  will 
almost  surely  suffer  in  the  outcome.     Educa- 


CONCLUSION  275 

tioii  should  be  a  fitting  and  not  an  unfitting. 
Educated  do-nothings  and  make-nothings  had 
better  have  been  left  uneducated.  They  recruit 
the  army  of  discontent  —  the  livers  by  wit 
and  device  —  the  social  outlaws,  detected  or 
successful. 

We  need  join  in  no  wholesale  condemnation 
of  education.  The  best  things  in  the  world 
come  with  it ;  but  its  promises  and  advantages 
are  misconceived  and  the  motives  with  which 
it  is  sought  require  amendment.  To  suppose 
that  only  the  professional  man  needs  to  be  well 
educated  is  a  gross  mistake.  There  is  no  cult- 
ure too  thorough  for  the  ordinary  bread-winner, 
while  the  doctor  and  the  lawyer,  if  content  to 
be  commonplace  hacks  in  their  profession,  can 
readily  dispense  Avith  advanced  training  other 
than  that  of  the  special  and  professional  schools. 
It  is  elsewhere  than  in  the  field,  the  shop,  or 
the  office,  that  complete  and  healthful  living 
requires  full  mental  and  moral  equipment  and 
well-rounded  intellectual  powers.  It  is  equally 
true  that  to  the  intelligence  of  the  farmers  and 
artisans  and  day-laborers  and  not  to  some  saving 
power  outside,  must  society  look  for  its  safety. 

The  schools  should  teach  us  how  to  use  the 
wealth  which   we   may  later  gain.      The   edu- 


276  F.L  p:men  tary.  economics 

cated  man  has  no  great  advantage  over  the  un- 
cultivated in  the  art  of  getting  dollars,  but  only 
in  the  art  of  making  dollars  worth  having  when 
once  they  are  gained.  To  get  the  best  out  of 
money  is  a  secret  which  goes  only  with  refined 
tastes  and  thoughtful  interests.  Education 
must  indeed  be  a  preparation  for  life,  but  a 
preparation  in  tlie  art  of  living  it  —  a  period 
of  acquirement  of  purposes,  tastes,  and  aspira- 
tions, of  broad,  earnest,  generous  interest  in 
the  things  of  thought. 

With  the  right  things  studied  in  the  schools 
—  rightly  taught  and  rightly  learned  —  intel- 
lectual life  will  not  cease  with  the  years  of 
school  attendance.  The  development  afforded 
by  the  active  life  of  politics  and  money-getting 
is  one-sided  and  inadequate;  the  inner  life 
suffers.  The  better  part  of  education  must 
then  lie  in  the  creation  of  an  effective,  abiding 
interest  in  the  things  worth  knowing.  School 
has  essentially  missed  its  purpose  if  it  has 
failed  to  fill  you  with  questionings,  and 
doubts,  and  interests,  whereby  all  the  phenom- 
ena of  nature  and  society  may  stand  to  you 
for  interrogation  points,  and  every  incident 
and  experience  furnish  its  fund  of  suggestion 
for  thought  and  its  stimulus  for  growth. 


INDEX 


(References  are  to  Sections) 


Ability.    See  Taxation. 
Abstinence.    See  Interest. 
Adaptation,  law  of,  5. 
Agriculture.       See    Land    and 

Rent. 
Alcoholic  drinks,  ^ee  Ta.xation. 
Apprentices.  See  Trades-unions. 

Banks,  statements.    See  Cur- 
rency. 
Barter,  79,  80. 

Bills  of  exchange  and  drafts,  95. 
Bimetallism.     See  Currency. 
Birth  and  death  rates,  76. 
See  Population. 

Cairnes,  Joh.v,  125. 
Capital, 

advantages  of,  22,  54,  55. 

creation  of,  21. 

defined,  21,  note. 

intellectual,  19. 

Spc  Interest. 
Child  labor,  133,  134. 
Coin.     See  Currency. 
Combinations.   See  Monopolies. 
Commercial  crises.     See  Cur- 
rency. 
Communism.    See  Socialism. 
Competitive  system, 

criticised  and  defended,  107. 


Consumption  of  wealth,  163-178. 
Co-operation,  114. 
Corners.     Sec  S|)e('ulation. 
Corporations,  114. 
Correspondence,  law  of,  5. 
Cost  of  production,  40-44. 

analysis,  43. 

the  marginal  doctrine,   41, 
44,  .-.2. 
Credit.     .SVe  Currency. 
Crises.    See  Currency. 
Cultivation,   Margin   of.     See 

Rent. 
Currency, 

necessary  qualities  in  money 
commodity,  81. 

credit  is  e.vchange,  82. 

credit  currency,  95. 

standard   of    deferred  pay- 
ments, 85. 

division    of     labor    makes 
utility  of  money,  80,  87. 

sih'vr  question,  8(>. 

value  of  the  unit,  89. 

demand      and      supply     of 
money,  90-i>4. 

paper  money,  96,  100. 

Greshams  law,  97-100. 

crises,  101-106. 

remedies,  106. 

banks,  95. 


277 


278 


INDEX 


Currency, 

bank-statements,  94,  95. 
qualities   of    gold    and    sil- 
ver, 81. 
Customs  tariff.     See  Interna- 
tional trade. 

Decreasing    returns.      See 

Land  and  Rent. 
Demand,  the  primary  fact,  13. 
expansiveness    of     desires, 

165,  166. 
See  Value. 
Desire.    .See  Demand. 
Diminishing  returns.   See  Land 

and  Rent. 
Distribution,  63-71. 
tendencies,  69-71. 
primarily     a     question     of 
product,  63. 
Division  of  labor, 

helps  production,  106. 
relation   to  currency.      See 

Currency. 
See  International  trade. 

Economics, 

scope  of,  1-4. 

definition  of,  4. 
Economic  motive,  40. 
Education, 

advantages,  12. 

purpose  of,  171. 
Eighf^hour  day,  130,  131. 
Employer.     See  Imprenditor. 
Entrepreneur.       See     Impren- 
ditor. 
Environment.     See  Man. 
Exchange  is  productive,  15,  80. 

See  Currency. 

Factors  in  production,  20- 
22.  See  Wages,  Profits, 
Kent. 


Fashion,  178. 

Free  silver.    See  Currency. 
Free  trade.    See  International 
trade. 

George,   Henry.     See  Taxa- 
tion of  rents. 
Gide,  Charles,  13. 
Gold  and  silver.    See  Currency. 
Goods, 

defined,  13. 

are  outside  facts,  19. 

See  Utility. 
Government.     See  Taxation. 
Gresham's  law.    See  Currency. 

Import  duties.    See  Interna- 
tional trade. 
Imprenditor, 

fun("tion,  (57. 

profits,  (;9-71. 

relation  to  wage-earner,  67. 
Income  taxes.     See  Taxation. 
Intellectual  capital,  19. 
Intelligence,  importance  in  pro- 
duction, 12. 

is  it  capital  ?  19. 
Interest, 

definition,  58,  59. 

determination,  60. 

tendencies,  48. 

See  Risk. 

See  Capital. 
International  trade, 

is  division  of  labor,  136. 

infant  industries,  146,  147. 

prices  and  currency  move- 
ments, 141. 

general     examination      of 
tariff  question,  l.'}6-147. 

protection   vs.   free    trade, 
136-147. 

King,  Gregory,  law  of,  124. 


INDEX 


279 


Labor.    See  Wages. 
Labor, 

has  value,  how? 

unions.    See  Trades-unions. 
Land, 

diminishing  returns,  49. 

tax  on.     See  Taxation. 

See  Rent. 
Liberty,  advantages  of,  12. 
Loans.     See  Interest. 
Luxury.     See  Ostentation. 

See  Taxation. 

Machinery, 

effect  on  wages,  22,  61,  62. 
Malthus,  73. 
Man, 

the  centre  of  economics,  4, 

6-8,  63. 
qualities  as  a  producer,  12. 
and  environment,  9-11,  165. 
Margin    of    cultivation.      See 

Rent. 
Marginal  doctrines.  See  Cost  of 
production.     See  "Value. 
Marshall,  Alfred,  32. 
Money.     See  Currency. 
Monometallism.  See  Currency. 
Monopolies,  69,  128. 
Morality,  advantages  of,  12. 
Motive     in     economics.      See 
Economic  motive. 

Nature.  See  Man  and  Envi- 
ronment. 

Ostentation,  178. 

Panics.    See  Currency. 

Paper  money.     See  Currency. 

Political  economy.  See  Econ- 
omics. 

Population  and  rent.  See 
Rent. 


Population, 

Malthusian  law,  73,  117. 
Price.    See  Cost  of  production. 

and  rent.     See  Rent. 
Profits,  defined,  24,  26. 

tendencies,  69-71. 

determination,  69,  70. 

distinguished    from   wages, 
24-26. 

See  Risk. 

See  Imprenditor. 
Protection. 

See  International  Trade. 

Quasi-rent,  36,  <>0-92. 
consumers',  36. 
producers',  36. 

Rent,  of  land,  45-52. 

differences  in  land,  46. 

population  and,  47,  117. 

diminishing  returns,  48,  49. 

urban  lands,  50. 

price  and,  51-53. 

margin  of  cultivation,  52. 
Revenue.     See  Taxation. 
Risk,  26,  note. 

See  Speculation. 
Rogers,  Thorold,  124. 
Roscher,  'Wilhelin,  115. 

Sacrifice,  line  of  least. 

See  Economic  motive. 
Salaries.    See  Wages. 
Savings.    See  Interest. 
Selfishness.        See      Economic 

motive. 
Services,  18. 
Silver.    See  Currency. 
Slavery,  effect  on  production, 

12,  115. 
Socialism  examined,  115. 
Speculation,  120-127, 

corners,  127, 


280 


INDEX 


Speculation.    See  Risk. 

Standard  of  living,  ltt.3-166. 

Stamlard     of     deferred     pay- 
ments, 8G. 
See  Currency. 

Succession   taxes.     See  Taxa- 
tion. 

Supply.    See  Value. 

Tariff.       See     International 

trade. 
Taxation, 

the  central  fact  in  govern- 
ment, 148. 
as  bearing  on  expenditures, 

149. 
all    taxation    falls   on  con- 
sumption, 151. 
shifting,  V>'.',,  1.54. 
taxes  on  rents,  1.55. 
Henry  George,  155. 
taxes  on  interest,  156. 
taxes  on  infome,  158. 
taxes  on  luxury  and  vice, 

100. 
taxes  on  inheritances,  161. 
taxes  on  personalty,  162. 
Tobacco.     See  Taxation. 
Trades-unions,  129. 
apprentices,  129. 
Trusts.    See  Monopolies. 

Undertaker.      See    Impren- 
ditor. 


!  Unearned  increment.    See  Tax 
on  rents. 
Unions.    See  Trades-unions. 
Urban  lands.     See  Rent. 
Utility, 

defined,  13. 

antagonism  with  value,  38. 
marginal,  36,  44,  52. 
See  Goods. 

Value,  defined,  38. 

determination,  .33-36. 

and  cost.  See  Cost  of  pro- 
duction. 

antagonism  with  utility,  .38. 

is  marginal  relative  utility, 
38. 

Wages, 

how  fixed,  67-70. 

of  women,  66,  1.35. 

relation  to  rent,  48. 

eight-hour  day,  130,  1.31. 

relation  to  cost  of  produc- 
tion, 28,  29. 

sweating  .system,  132. 
Wealth, 

defined, 14. 

materiality,  16. 

growth  of,  18.     . 
Women.     See  Wages. 

labor  of,  1.33,  134. 


OUTLINES  OF  ECONOMIC  THEORY. 

BY 

HERBERT  JOSEPH  DAVENPORT. 
Cloth.    8vo.    $2.00  net. 


This  was  not  primarily  intended  as  a  text-book,  yet  it  is  well- 
adapted  to  the  pedagogical  need.  The  feature  which  first  attracts 
attention  is  the  short  list  of  "  suggestive  questions"  which  open  and 
close  each  chapter,  serving  in  part  as  a  review  of  the  text  and  in 
part  to  indicate  the  bearing  of  the  theoretical  discussions  upon  sub- 
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currency,  bimetallism,  international  trade  and  currency,  commercial 
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nomics as  Art.  Its  discussions  are  of  great  practical  value  and  are 
timely,  touching  on  the  competitive  system,  co-operation  and  profit- 
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day,  the  apprentice  system,  sweating  shops,  the  labor  of  women 
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"Recent  events  in  the  political  world  have  stimulated  general  in- 
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"The  '  Outlines  '  is  a  carefully  compiled  and  very  comprehensive 
treatise,  elemental  to  a  certain  degree,  but  not  to  such  an  extent  as 
to  render  it  uninteresting  to  the  average  reader.  His  method  is 
well  adapted  to  pedagogical  needs."  —  The  \'c:.i>  Orleans  Picayune. 


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ECONOMIC  CLASSICS. 


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VOLUMES  NOW  READY. 

ADAM  SMITH.  —  Select  Chapters  and  Passages  from  "  The 
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T.  R.  MALTHUS.  —  Parallel  Chapters  from  the  first  and  second 
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RICARDO.  —  The  first  six  chapters  of  "The  Principles  of  Politi- 
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Based  upon  Original  and  Contemporaneous  Records.  By 
Philip  Alexander  Bruce.    2  vols.    Crown  8vo.    Price  $6.00. 

"  There  is  no  other  work  which  goes  so  thoroughly  into  the  very  smallest 
economic  condition  of  the  seventeenth  century  in  America."  —  Baltimore 
Snn. 

"  An  able,  well-written,  carefully  considered  work,  and  the  fact  that  no 
other  writer  has  attempted  so  comprehensive  an  account  of  a  period  of  such 
great  interest  and  significance  adds  vastly  to  its  worth.  Nowhere  else  can  be 
found  such  a  storehouse  of  valuable  information  relating  to  the  early  days  of 
the  Old  Dominion."  —  Detroit  Free  Press. 


THE    MACMILLAN    COMPANY, 

66  FIFTH  AVENUE,  NEW  YORK. 
3 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 

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